OUCH — 1Q13 GDP, Third Estimate: An Annualized 1.8%, Down From 2.4% in May, and Way Down From the 3.0% Original April Prediction (Update: The Farm Inventories Mystery)
I vaguely remember someone saying that the initial 2.5% reading two months ago was too good to be true:
… the consumption element seems far too high, especially with the March slowdown in retail sales.
Here’s part of the report from the Bureau of Economic Analysis:
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 1.8 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.
… The downward revision to the percent change in real GDP primarily reflected downward revisions to personal consumption expenditures, to exports, and to nonresidential fixed investment that were partly offset by a downward revision to imports.
And don’t forget that initial expectations in April were for a reading of 3.0%. Oops.
Predictions today were for no change. Oops, again.
I also thought that the farm inventory buildup number was ridiculous, and that it would come down. Well, it didn’t, instead going from an initial 0.78 points of GDP in April to 0.83 points today. So about 45% of the first quarter’s GDP growth occurred because we produced — but didn’t sell — a lot more food. Really?
UPDATE: The farm inventories mystery deepens (please, try to stay awake :–>) –
Farm inventories in current dollars only increased by $1.9 billion, or $7.6 billion annualized (after multiplying by four).
The increase in farm inventories reported today in current dollars (already annualized) was $23.2 billion, or over triple the reported inventory change.
The following footnote found at BEA’s tables (can’t link, because the tables are interactive) is useful, but still unsatisfactory:
Inventories are as of the end of the quarter. The quarter-to-quarter change in inventories calculated from current-dollar inventories in this table is not the current-dollar change in private inventories component of GDP. The former is the difference between two inventory stocks, each valued at its respective end-of-quarter prices. The latter is the change in the physical volume of inventories valued at average prices of the quarter. In addition, changes calculated from this table are at quarterly rates, whereas, the change in private inventories is stated at annual rates.
That explanation tells me why there can be a difference. It doesn’t explain why the difference is so large.
I have a call into the Bureau of Economic Analysis for an explanation. If I get one, I’ll update. Until then, I have to believe that the big farm inventories gain in the first quarter is going to be largely offset in the second, which doesn’t bode well at all for reported overall second quarter GDP growth.
UPDATE 2: Also, the April 0.25-point contribution to GDP growth for all other inventories moved to a 0.26-point decrease in June.
So farm inventories, which are about 10% of all inventories, somehow had triple the influence in the opposite direction of the other 90% of inventories. I certainly think we need to know what’s going on behind the curtain.