In the second of three estimates for the period, the Commerce Department reported that real economic growth in the U.S. during the first quarter was revised downward, from an annual rate of 2.2% to 1.9%, primarily due to lowered estimates for private inventory investment and higher imports. This is down from a 3.0% growth rate during the fourth quarter of last year.
In a separate report from the Labor Department, weekly jobless claims rose to their highest level in five weeks, up from an upwardly revised 373,000 to 383,000 for the week ending March 26. Along with a disappointing tally of 133,000 private sector jobs from ADP, the stage is now set for Friday’s monthly labor report and the Institute for Supply Management’s national manufacturing index.
Returning to the GDP report, the downward revision was mostly in line with analysts' estimates as lower inventory building, a bigger trade gap, and less government spending were expected. However, consumer spending was also revised lower. The percentage contributions to the change in GDP are shown below and, as usual, American consumers have been doing their share of the heavy lifting in recent months -- that is, ever since the debt ceiling debate ended last summer.
Consumer spending during the January to March period was revised downward from a gain of 2.9% to 2.7%. However, driven by a 14.3% surge in purchases of durable goods, this group still accounted for all of the overall GDP gains with a contribution of 1.9 percentage points.
Economists expect GDP growth to improve in the second quarter to just over 2% in what may prove to be an overly optimistic assessment of the U.S. economy’s prospects, given recent developments in Europe and a stream of disappointing U.S. economic reports in recent months.