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 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.
The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.
Let's look deeper in the report.
Real personal consumption expenditures increased 3.6 percent in the first quarter, compared with an increase of 1.6 percent in the fourth. Durable goods increased 11.3 percent, compared with anincrease of 0.4 percent. Nondurable goods increased 3.9 percent, compared with an increase of 4.0 percent. Services increased 2.4 percent, compared with an increase of 1.0 percent.
This is good news. 70% of the GDP report increased 3.6% -- and the increases were broad-based. The largest area of PCEs -- services -- increased 2.4%, non-durables increased 3.9% and the smallest area of spending (durable goods) increased 11.3%. This is especially important as it indicates an increased desire consumers to take on longer-term payment plans.
Real nonresidential fixed investment increased 4.1 percent in the first quarter, compared with an increase of 5.3 percent in the fourth. Nonresidential structures decreased 14.0 percent, compared with a decrease of 18.0 percent. Equipment and software increased 13.4 percent, compared with an increase of 19.0 percent. Real residential fixed investment decreased 10.9 percent, in contrast to an increase of 3.8 percent.
While structures were down -- which is to be expected in the current real estate environment -- other investment was up. Equipment and software increases indicate business is investing to keep productivity gains increasing.
Real exports of goods and services increased 5.8 percent in the first quarter, compared with an increase of 22.8 percent in the fourth. Real imports of goods and services increased 8.9 percent, compared with an increase of 15.8 percent.
The good news is exports are increasing. The bad news is imports are increasing faster. While the increase in imports indicates consumer spending is increasing, it also indicates the trade deficit is increasing as well.
The change in real private inventories added 1.57 percentage points to the first-quarter change in real GDP after adding 3.79 percentage points to the fourth-quarter change. Private businesses increased inventories $31.1 billion in the first quarter, following decreases of $19.7 billion in the fourth quarter and $139.2 billion in the third.
Expect harping on this point, with arguments like "it's not real growth" or it can't continue. Considering the massive drop in inventories that we've seen over the recession the trend can continue for some time, so that argument is moot. In addition, inventory restocking is just as important an economic activity as, well, all other economic activities.
Bottom line: this is a very good report and indicates the expansion continues.