Cheer Down: 1st Quarter GDP Revised Slightly

As George Harrison said in his 1989 song, “Cheer down.”  In a move that surprised many economists, GDP growth for the 1^st quarter of 2010 has been revised slightly downward – from 3.2 percent to three percent – according to the Bureau of Economic Analysis.  Even with the downward revision, the 1^st quarter was the second highest quarterly growth reported since late 2007 when the Great Recession began.

Writing in The Atlantic, Daniel Indiviglio notes that “The revision was caused almost entirely by the personal consumption expenditures portion, i.e., consumer spending.  Even though this got a lot better in the 1^st quarter, it didn’t improve as much as originally thought.  It was responsible for 2.42 percent of the three percent growth.  The prior estimate reported a 2.55 percent contribution.  That 0.13 percent difference is responsible for the vast majority of the 0.2 percent revised drop.”  Spending on services – housing, utilities, food and accommodations — during the 1^st quarter was overestimated in the original GDP report.

According to Indiviglio, “Of course, 0.2 percent isn’t much.  But it is a little disappointing where most of this revision came from.  Spending needs to drive the recovery to create jobs.  It’s also unfortunate that restaurants and travel was one of the most downwardly revised components; spending on these non-necessities is also an indicator that consumers are feeling much more comfortable opening their wallets.  This component, and spending overall, still showed a healthy increase compared to 2009, but these revisions make their progress a little less impressive.”

Trade estimates were revised upward to $27.3 billion from $22 billion.  At the same time, imports rose to $47.6 billion from $41 billion in the original estimate.  “So the net result is mostly a wash:  the two revisions approximately cancel each other out.  But it is good to see more exports than originally anticipated,” Indiviglio concludes.