Q1 GDP Growth Below Expectations, But Don't Count The Economy Out Yet

Includes: IYY, SPY
by: Eddy Elfenbein

Eddy Elfenbein submits: The government reported today that the economy grew by 0.6% (annualized) in the first three months of this year. Actually, if you want to be precise, it was 0.6496%, which nearly rounded to 0.7%. In any event, this is a sharp downward revision from the initial estimate of 1.3% growth.

Bloomberg reports:

Today's revisions reflected a bigger trade deficit and fewer inventories than the government estimated last month. The trade deficit widened to an annual pace of $611.8 billion, subtracting 1 percentage point from GDP, twice as much as previously estimated.

Companies reduced stockpiles at a $4.5 billion rate last quarter compared with initial estimates of a $14.8 billion gain at an annual rate. The figures subtracted another percentage point from growth.

A jump in consumer spending last quarter was one of the few things that kept the expansion alive. The increase in spending, which accounts for about 70 percent of the economy, was revised up to an annual rate of 4.4 percent, the biggest gain in a year, from an initial estimate of 3.8 percent.

Over the last four quarters, the economy has grown by just 1.9%. The economy tends to be very trend-like, meaning a weak quarter is usually followed by another weak quarter. We've now had four straight quarters of below-trend growth. But don't count the economy out just yet. The Fed may start to lower rates soon. Also, the weak dollar helps as well.