United States: First-quarter U.S. GDP growth is revised up on inventories and a narrower trade deficit
May 27, 2016
Revised data showed that U.S. GDP in Q1 grew at a slightly faster pace than initially reported, suggesting that the economy was more resilient to financial volatility and a global economic slowdown. GDP increased at a seasonally adjusted annualized rate (SAAR) of 0.8%, which was revised up from the 0.5% increase previously reported. Yet, the upward revision fell short of a 0.9% expansion the markets had expected and still represented a notable deceleration compared to the 1.4% increase tallied in Q4.
Most of the upward revision was due to a larger buildup of inventories—a typical powerful variable in revisions—and a narrower trade deficit. Meanwhile, private consumption remained unchanged, increasing 1.9% over the previous quarter, which marked a deceleration over the 2.4% rise observed in Q4. Government spending was also not revised and increased 1.2% over the previous quarter (Q4: +0.1% SAAR). Revised data showed that non-residential fixed investment contracted 6.2%, which was revised down from the 5.8% decrease showed in the preliminary estimate. The print marked a notable deterioration over the 2.1% drop observed in Q4. The weaker readings observed in private consumption and non-residential fixed investment mainly reflected American households’ more prudence after a turbulent start to the year in financial markets and businesses’—particularly energy firms—capital expenditure (CAPEX) cutback in the wake of low energy prices.
On the external side of the economy, the strengthening of the dollar continued to dampen exports of goods and services, which decreased 2.0% in Q1 (Q4: -2.0% SAAR). However, the revised figure was somewhat better than the 2.6% decrease previously reported in the first estimate. On the other side of the balance, revised data showed that imports contracted 0.2% in Q1, which was substantially revised downwardly from the 0.2% increase initially reported. Consequently, the contribution from net exports to overall economic growth improved from minus 0.3 percentage points in the first estimate to minus 0.2 percentage points.
The slightly more positive data have prompted the Federal Reserve to take a far more hawkish tone in recent weeks, which indicates that U.S. monetary authorities may increase interest rates this summer, after increasing it in December last year for the first time since 2006.
Author: Ricardo Aceves, Senior Economist