Q1 GDP Lowered from 2.4 Percent Growth to 1.8 Percent

Andrew Klips |

The Commerce Department on Wednesday slashed its view on how much the U.S. economy grew in the first quarter from the fourth quarter of last year for the second time in as many months. In the agency's final reading of gross domestic product – the broadest measure of economic activity – for the January to March period, GDP was lowered from 2.4 percent expansion reported in May to 1.8 percent growth. Economists expected no revision in the final figure from May.

In the first estimate in April, the Commerce Department pegged GDP at 2.5 percent growth, following tepid growth in the fourth quarter of 2012 of 0.4 percent.

The downward revision to the percent change in 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, according to the report.

Consumer spending, the primary driver of the country's economy, was the main culprit in the GDP reduction, lowered from 3.4 percent to 2.6 percent expansion. Consumer spending makes up about 70 percent of GDP. In the fourth quarter last year, consumer spending increased by 1.8 percent. Americans spent far less on services than originally though, with the figure lowered from an increase of 3.1 percent to 1.7 percent.

Durable goods orders expanded in the first quarter, but at a slower rate than the fourth quarter with gains of 7.6 percent and 13.6 percent, respectively.

Exports were revised to show a 1.1 percent contraction, rather than a 0.8 percent gain. Imports were reported last month at a 1.9 percent gain, but revised to a 0.4 percent decline.

Also to the downside, business investment in structures fell more than originally expected to -8.3 percent (from -3.5%), versus an increase of 16.7 percent in Q4 2012.

Most other figures only experienced minor revisions.

Stocks pared gains slightly in pre-market activity following the report. The reduction in GDP is backward looking, so the impact is less than might normally be expected, although it does cast a darker cloud over the rosy view of the economy by the Federal Reserve last week. To that end, the lower GDP info may actually be viewed as favorable for the Fed continuing their monetary easing package that has been hamstringing markets since discussions of tapering the Treasury and bond-buying initiatives have gripped markets in the past month.

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