April 26, 2013

1Q13 Gross Domestic Product (042613): An Annualized 2.5%, Significantly Trailing Expectations

The press can hardly contain itself. It thinks a “robust” GDP report is coming out today, and is almost salivating at the prospect.

The fourth quarter, which ended at a terrible annualized +0.4%, was supposedly chock full of one-time excuses. One commentator — to be clear, not a reporter, but making a comment reporters gobbled up — reacted to the initial reading of an annualized -0.1% in January by calling it “the best looking contraction in GDP you’ll ever see.”

Well, if the economy really is returning to health, and with all those one-time influences out of the way, today should at least come in at an annualized 4% or more — and even then, the proper way to look at things would be to say that “Now that things have averaged out, it’s clear that the economy is moving along at a medicore 2% or so pace.” That of course is not the portrayal we’ll see, even if today’s figure comes in at the expected 3%.

Predictions, accompanied by premature e-celebration at the AP:

Associated Press

U.S. economic growth likely accelerated from January through March from a near-stall at the end of 2012, propelled by a revival in housing, steady consumer spending and increased stockpiling by businesses.

… Economists predict that the overall economy grew at an annual rate of 3.1 percent in the January-March quarter, according to a survey by FactSet. That would be a significant improvement from the anemic 0.4 percent growth rate reported for the October-December quarter.

A 3.1 percent growth rate would match the robust pace of the July-September quarter last year.

3.1% is “robust”? They just keep lowering the bar, don’t they?


A Commerce Department report at 8:30 a.m. in Washington may show the U.S. economy accelerated in the first quarter. Gross domestic product rose at a 3 percent annualized rate after expanding at a 0.4 percent pace in the final three months of 2012, according to the median forecast of economists in a Bloomberg survey.

Reuters, jumping on the sequestration blame-game train —

First-quarter GDP seen at 3 percent but momentum ebbs

Economic growth probably gained steam in the first quarter on strong consumer spending, but the momentum is already ebbing and could slow further as the impact of automatic government spending cuts kick in.

The report will be here at 8:30.

HERE IT IS (full report), complete with a side dish of crow for the establishment press:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the first quarter, based on more complete data, will be released on May 30, 2013.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

… The acceleration in real GDP in the first quarter primarily reflected an upturn in private
inventory investment, an acceleration in PCE, an upturn in exports, and a smaller decrease in federal
government spending that were partly offset by an upturn in imports and a deceleration in nonresidential
fixed investment.

After all the excuses in the fourth quarter which were supposed to turn around 2.5% is pathetic. It’s a reasonably good bet that they’ll try to spin the news as pretty good anyway, and blame “massive government spending cuts” for why it wasn’t better.

40% of the GDP gain was in inventory buildups.

Taking away the inventory change, fixed private investment’s contribution to GDP dropped from 1.69 points in the fourth quarter to 0.53 points in today’s report — and 60% of that was in housing.


UPDATE: Zero Hedge

Less than an hour ago we speculated that “it wouldn’t be surprising for GDP to come substantially weaker than expected, only to be revised higher (or lower) subsequently.” Sure enough, we have gotten at least the first part right for now, with the advance Q1 GDP number printing a very disappointing 2.5%, on expectations of a 3.0% increase, up from 0.4% in Q4, and the biggest miss since Q3 2011.

UPDATE 2: Closing the inventory point, subtracting inventory change out of the latest and previous quarters leaves annualized growth of 1.92% in 4Q12 and 1.47% in 1Q13. No one can possibly believe that’s acceptable.

UPDATE 3: This is a real headline from the Adminisntration’s Press and “The Worst Economics Writer” Martin Crutsinger — “US economy accelerates at 2.5 percent rate in first quarter, propelled by consumer spending.”



  1. I’m expecting the 2.5% to be reduced to 2.2% or lower in the next 30 days.

    Comment by toledojim — April 26, 2013 @ 12:17 pm

  2. I’m leaning in that direction too, b/c the consumption element seems far too high, especially with the March slowdown in retail sales.

    Comment by Tom — April 26, 2013 @ 12:20 pm

  3. A commenter over at Hot Air found an interesting tidbit at Consumer Metrics Institute:

    For this set of revisions the BEA assumed annualized net aggregate inflation of 1.20%. In contrast, during the first quarter the seasonally adjusted CPI-U published by the Bureau of Labor Statistics (BLS) recorded a 2.10% annualized inflation rate. As a reminder: an understatement of assumed inflation increases the reported headline number — and in this case the BEA’s relatively low “deflater” (nearly a full percent below the CPI-U) boosted the published headline rate. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a much more modest 1.63%.

    It would be very interesting to see how the BEA deflator compares to the CPI-U over the years.

    Comment by steveegg — April 26, 2013 @ 1:22 pm

  4. A bit of a check on the last comment – the BLS CPI-U data I’ve been able to dig up contradicts the Consumer Metrics Institute’s 2.1% CPI-U inflation claim. I came up with 1.7% 2012Q1-2013Q1 (both seasonally and not seasonally adjusted) and 1.4% 2012Q4-2013Q1 (seasonally adlusted/annualized). Moreover, C-CPI-U 2012Q1-2013Q1 was 1.6%.

    Since 1980, the BEA annual deflator historically has been 0.58 points lower than CPI-U’s measure of inflation. Oddly, it has averaged 0.27 points higher than C-CPI-U (going back to 2001).

    Comment by steveegg — April 26, 2013 @ 1:55 pm

  5. #3 and #4, I wonder if the deflator changes or stays frozen in revisions.

    What’s inflated appears to be today’s 2.5% number.

    Comment by Tom — April 26, 2013 @ 3:10 pm

  6. [...] the pet excuses for why the fourth quarter was so weak. Now they’re the big driver of growth. As I noted on Friday, growth after flushing out inventory changes was an annualized 1.92% in the fourth quarter and [...]

    Pingback by BizzyBlog — April 28, 2013 @ 11:23 am

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