June 25, 2014

1Q14 Gross Domestic Product, 3rd Reading (062514): An Annualized Contraction of 2.9% (See Updates)

Filed under: Economy,Taxes & Government — Tom @ 8:04 am

Predictions:

About one of those Predictions: This quote at the Business Insider link would appear to call for a worse reading than those just noted (bolds are mine) —

Morgan Stanley’s Ted Wieseman explains: “Data released since the first revision to Q1 GDP growth to -1.0% from +0.1% point to a significantly lower number again. Indeed, Q1 looks to have been the worst quarter outside of an actual recession on record by a wide margin. BEA had been assuming strong growth in healthcare spending based on significant expansion of insurance coverage this year under Medicaid and insurance exchanges, but the Census Bureau’s quarterly services report instead showed a pullback in healthcare spending after strong growth in Q4, and BEA’s incorporation of the Census Bureau data should account for most of a cut in consumption growth to 2.1% from 3.1%. The other big expected revision is to trade. Annual revisions pointed to the Q1 net exports contribution being revised down to -1.5pp from -1.0pp, we estimate.”

The one-point cut in consumption and the half-point worsening in net exports gives us a total of 1.5 percent. That change from the last reading showing a 1.0 percent contraction would lead to a 2.5 percent reported annualized contraction today.

Yours truly’s take: I’m concerned, as shown here, that a true 2 percent decrease in health care spending in the first quarter as presented in another government survey earlier this month, if fully reflected in the GDP report, could increase the contraction to 3.0 percent or more. I’m not saying that’s what will happen. I’m saying what would happen if BEA’s release is in sync with the earlier Commerce Department report, and if there are no other significant negative influences. If the trade effect is as predicted, the conceivable contraction gets even worse.

The report will be here at 8:30 a.m.

HERE IT IS (full HTML here): OUCH — My concerns were justified:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, real GDP was estimated to have decreased 1.0 percent. With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated (for more information, see “Revisions” on page 3).

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

Don’t know for sure, but it wouldn’t surprise me a bit if this isn’t the worst-ever downward revision in the third release from the second (See Update below; Reuters says it’s the biggest downward adjustment in a third release since 1976). Usually, any big changes in a given quarter get reflected in the second release.

More detail in a bit … OK, read it and weep:

1Q14GDP3rdRevChanges

This is not the time to crow about how “I was right,” because I wasn’t making a hard prediction. I was pointing out that the press and others were downplaying the extent of potential negative influences — and here we are.

Now the questions are:
- What will next month’s multi-year comprehensive revision bring?
- Can the second quarter even offset the first?

__________________________________________

UPDATE 1, 11:25 a.m.: Thanks for the props at Hot Air, which also has a great video reference back to Jay Carney’s lame claim two months ago that Obamacare was adding to GDP.

UPDATE 1A: Steve Eggleston in the comments points to a Reuters report cited at Hot Air saying that this was the largest downward adjustment in a third release since 1976.

UPDATE 2, 11:35 a.m.: You can’t make this stuff up, via Zero Hedge

Goldman Boosts Q2 GDP Forecast Due To Collapse In Q1 GDP

“…(Goldman) we think that Q1 GDP was an aberration, and is not representative of the strengthening underlying trend in US growth.”

We increased our Q2 GDP tracking estimate by two-tenths to 4.0%.

(Zero Hedge reax) There is nothing we can add to such brilliant weatherman insight as what Jan Hatzius from Goldman just unleashed …

This borders on insulting — and I say that only because I’m not a Goldman client.

If I were a Goldman client, I would be saying that it is insulting — and I would seriously consider taking my business elsewhere.

UPDATE 3, 11:45 a.m.: Zero Hedge“… as a reminder, US GDP has never fallen more than 1.5% except during or just before an NBER-defined recession since quarterly GDP records began in 1947.”

UPDATE 4, 12:30 p.m.: Note well that the reported reduction in health care spending in today’s GDP report is about 0.4%. That COULD indicate that the BEA still hasn’t captured the full extent of the health care spending reduction, which could lead to a further downward revision in next month’s comprehensive 5-year restatement.

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11 Comments

  1. The economy produced by the American Communist Party is a sad sight, for at least 47% of the population. :)

    In all seriousness, Obama’s track record suggests that this quarter’s results will in no way make up for the 1st quarter disaster. With unprecented regulations, the resumption of large deficits, and a Marxist’s disdain for freedom, results will be lackluster for the next several quarters.

    Of course, the press might report the numbers, but they will refuse to trumpet how bad it really is.

    Oh, did I mention the effects of staggeringly high fuel prices and food inflation…

    Comment by Grumpyguy — June 25, 2014 @ 9:33 am

  2. Reuters said that the 2nd-to-3rd revision was the worst on record going back to at least 1976.

    If you think the 17th-worst quarterly drop in real GDP on record (going back to 1947) is bad, I’ve got even worse news. The -1.71% drop in nominal GDP, the first negative number since the Great Recession, is the 10th-worst drop on record. Other than 4Q2008 and 1Q2009, it’s the worst drop since 4Q1960.

    Comment by steveegg — June 25, 2014 @ 9:42 am

  3. I understand your comment about no “hard” prediction but the ENTIRE RANGE of your soft prediction was closer to what occurred than the so-called experts. They are purposefully soft peddalling the bad news.

    Comment by Scott — June 25, 2014 @ 9:54 am

  4. BTW, 3.01% 2nd quarter needed to get back 4th quarter GDP.

    Comment by Scott — June 25, 2014 @ 10:01 am

  5. Great points, Scott, especially about the needed offset.

    I think, esp given the analyst I quoted at the top of the post who gave solid reasons why the writedown would be 1.5 points, that the press indeed did everything it could to soften the blow.

    I specifically asked a reporter last week if BOTH trade and healthcare was in their -2% estimate, and he said “Yes.” I think either he was deceiving or he was himself deceived.

    Comment by Tom — June 25, 2014 @ 10:08 am

  6. Actually, Ed found that Reuters statement. I merely pointed him here for the PlaceboCare crash of the economy.

    Comment by steveegg — June 25, 2014 @ 12:42 pm

  7. Revised. Thx.

    Comment by Tom — June 25, 2014 @ 12:52 pm

  8. [...] report from Bureau of Economic Analysis is out and it was a shocker. I don’t think anybody except BizzyBlog saw a 2.9% decline. I was curious how fast the economy was growing on an annualized basis. Some [...]

    Pingback by Who Would Have Thunk We Would Get A 2.9% Decline In GDP? | alazycowboy.com — June 25, 2014 @ 3:01 pm

  9. [...] Meanwhile, Tom Blumer adds at Bizzy Blog: UPDATE 3, 11:45 a.m.: Zero Hedge — “… as a reminder, US GDP has never fallen more [...]

    Pingback by Ed Driscoll » First Quarter GDP Collapses: Negative 2.9% — June 25, 2014 @ 3:08 pm

  10. [...] GDP report, which increased the first-quarter contraction to an annualized 2.9 percent, is not the last [...]

    Pingback by BizzyBlog — June 26, 2014 @ 1:48 pm

  11. [...] wake of the government’s third revision to gross domestic product showing that the economy shrunk by an annualized 2.9 percent during the first quarter instead of the previously reported 1.0 percent, commentators, analysts, [...]

    Pingback by BizzyBlog — June 26, 2014 @ 4:39 pm

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