Friday, April 27, 2007

Advance Estimate GDP = +1.3%; Price Deflator Increases 4%

From the BEA

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the first quarter of 2007, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent.

The Bureau emphasized that the first-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The first-quarter "preliminary" estimates, based on more comprehensive data, will be released on May 31, 2007.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and state and local government spending that were partly offset by negative contributions from residential fixed investment, private inventory investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the first quarter primarily reflected a downturn in exports, an upturn in imports, a deceleration in PCE for nondurable goods, and a downturn in federal government spending that were partly offset by a smaller decrease in private inventory investment, an upturn in equipment and software, a smaller decrease in residential fixed investment, and an acceleration in PCE for durable goods.

From Bloomberg:

The U.S. economy grew in the first quarter at the slowest pace in four years, hobbled by the slump in home construction and a bigger trade deficit.

The 1.3 percent annual growth rate was less than forecast and followed a 2.5 percent fourth-quarter pace, the Commerce Department reported today in Washington. A measure of inflation watched by the Federal Reserve rose at a faster pace.


A jump in oil last quarter pushed up prices. The report's price index rose at an annual rate of 4 percent, the most since 1991, compared with 1.7 percent in the fourth quarter.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, up from a 1.8 percent fourth-quarter gain. Fed Chairman Ben S. Bernanke is among policy makers that have said a 1 percent to 2 percent increase is preferable.

From CNBC:

Weaker exports and a steady slide in spending on homebuilding helped slow U.S. economic growth to its softest pace in four years during the first quarter, the Commerce Department reported on Friday.

Gross domestic product or GDP, which measures total goods and services output within U.S. borders, increased at a weaker-than-expected 1.3% annual rate in the three months from January through March.

That was a little more than half the fourth quarter's 2.5% rate and well below the 1.8% rate that Wall Street analysts had forecast GDP would expand. The last quarter when growth was weaker was in the first three months of 2003, when GDP expanded at a 1.2% rate.


A price gauge favored by the Federal Reserve - personal consumption expenditures excluding food and energy items - increased at a 2.2% rate in the first quarter, slightly ahead of forecasts for a 2.1% advance. That was up substantially from the fourth quarter's 1.8% rate and is likely to keep Fed policy-makers wary about the potential for a pickup in inflation.

From CBS:

Hit by rising energy prices and a weak housing market, the U.S. economy slowed to 1.3% real annualized growth in the first quarter, the weakest expansion in four years, the Commerce Department estimated Friday.


Led by higher energy costs, the GDP price index increased 4%, the most in 16 years. Meanwhile, core consumer prices - which exclude food and energy costs - increased at a more moderate 2.2% annual pace. In the past year, core prices are up 2.2%, the same year-over-year pace as in the fourth quarter, but above the Fed's 2.0% ceiling.

Consumer prices including food and energy are also up 2.2% in the past year.

Here are the details from the report.

Personal Consumption Expenditures (PCEs): + 3.8%. The big surprise here is the 7.3% in durable goods expenditures. The big reason for the jump was a jump in car and furniture sales.

Gross Private Domestic Investment decreased 6.5%. Residential investment fell 17%, which is to be expected. Nonresidential investment increased 2%, with the subcategory structures increasing 2.2% and software/equipment increasing 1.9%.

Exports decreased 1.2% and imports increased 2.3%.

Government spending (government consumption expenditures) increased .9%. Federal spending decreased 3% and state spending increased 3.3%.

Here's the summary:

This report is terrible. Growth slowed more than forecast and inflation increased more than expected and well beyond the Fed's comfort zone.

The Fed is between a rock and a hard place. They've been there for awhile and they will remain there for the foreseeable future.