United States GDP

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United States: Revised Q1 data reveal largest GDP contraction in five years

June 25, 2014

In the first quarter, GDP contracted at a seasonally adjusted annualized rate (SAAR) of 2.9% according to the third estimate released by the Bureau of Economic Analysis (BEA) on 25 June. The print marked a significant downward revision to the 1.0% decline reported in the second estimate and was more negative than the 1.8% decline the market had expected. The revised first quarter reading, which represented the poorest GDP result since Q1 2009, mainly reflected a much weaker rise in private consumption and a larger contraction in exports than was reported in the previous update. The unusually cold winter weather is also seen as having dragged significantly on economic activity across the board. Moreover, the revision from the second to third estimate was the largest since 1976.

On the domestic side of the economy, private consumption rose just 1.0% (second estimate: +3.1% quarter-on-quarter SAAR). The revision to consumer spending was mostly caused by difficulties in calculating expenditures related to the Affordable Care Act. Updated data show that healthcare spending fell 0.2%, which contrasted the 0.7% increase originally estimated. Non-residential fixed investment fell 1.2% (second estimate: -1.6% qoq SAAR). Meanwhile, residential fixed investment contracted 4.2% (second estimate: -5.1% qoq SAAR). Business inventories continued to be a drag on economic growth. Government spending decreased 0.8% in Q1, which matched the previous number.

On the external front, exports were revised down and imports were revised up. According to the third estimate, exports fell 8.9% in Q1 (second estimate: -6.0% qoq SAAR), while imports increased 1.8% (second estimate: +0.8% qoq SAAR). As a result, the external sector’s net contribution to overall growth was revised down from minus 1.0 percentage points to minus 1.5 percentage points.

Despite the sharp downward revision to Q1 data some analysts are optimistic regarding economic performance going forward. As James Knightley, senior economist at ING, points out:

“Reaction should be fairly muted given widespread expectations of a sharp bounceback in 2Q14 and the fact that the weather had such a damaging impact on 1Q activity. Indeed, we suspect that we could see GDP rise by more than 5% annualised in 2Q. High frequency numbers for the quarter have looked good while inventories should also make a significant positive contribution after having been run down sharply.”

The Federal Reserve expects economic growth to range between 2.8% and 3.0% in 2014 and between 3.0% and 3.2% in 2015. FocusEconomics Consensus Forecast panelists are slightly less optimistic than the Fed and expect GDP to expand 2.5% in 2014, which is down 0.1 percentage points from last month’s forecast. For 2015, the panel expects the economy to expand 3.0%.


Author:, Economist

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USA GDP Q1 2014 1

Note: Quarter-on-quarter annualized changes and annual variation of seasonally adjusted GDP in %.
Source: Bureau of Economic Analysis and FocusEconomics Consensus Forecast.


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