Despite Upward Revision, Slower Growth Trend Continues

The Bureau of Economic Analysis reported today that GDP, a broad measure of overall economic activity, rose by a seasonally adjusted annual rate of 1.1% in the first quarter of 2016. Today’s release is the third and final estimate of GDP growth for the quarter.

The final estimate of GDP growth was revised higher from both the second and the first, or “advance”, estimate. As shown in Figure 1 below, the first estimate of GDP growth over the January through March period was 0.5% and the second estimate was 0.8%. In the chart, the GDP figures are the growth rates associated with each revision. Overall GDP growth is decomposed into the five major components and the contribution of each category to the overall growth rate corresponding to each estimate. Arithmetically, the sum of the percentage points across the five major categories equals the percentage growth in GDP.

As illustrated by Figure 1, in the third estimate each category except gross private domestic investment contributed to first quarter growth in overall GDP. However, while the contribution of personal consumption expenditures was the largest positive contributor to overall growth, its contribution to the final estimate was 27 percentage points lower than its contribution in the second estimate. Exports and imports, both of which subtracted from growth in the advance estimate, with exports still subtracting from overall growth in the second estimate, reversed and in the final estimate both international trade categories contributed to overall growth. Meanwhile, gross private domestic investment, which subtracted from overall growth in the first quarter, was revised upward, shrinking its negative impact on overall growth.

Presentation1

Despite the upward revision in overall growth, the final estimate of the rate of GDP growth for the first quarter of 2016 continued the steady decline recorded over the previous three quarters. In the second quarter of 2015 the final estimate of GDP growth was 3.9%, 2.8 percentage points greater than the final reading in the first quarter of 2016. As shown by Figure 2 below, the deceleration in GDP growth largely reflects smaller contributions to growth by personal consumption expenditures and gross private domestic investment.

In the second quarter of 2015, personal consumption expenditures contributed 2.4 percentage points to overall growth, but by the first quarter of 2016 it contributed 1.0 percentage point, a drop of 1.4 percentage points over this period. Meanwhile, gross private domestic investment ranged from a positive contribution of 0.9 percentage point in the second quarter of 2015 to a negative one of 0.3 percentage point in the first quarter of 2016, a drop of 1.2 percentage points. Exports, which ranged from a positive contribution of 0.6 percentage point to growth in the second quarter of 2015 to a subtraction of 0.3 percentage point from growth by the fourth quarter of 2015, contributed 0.04 percentage point to growth in the first quarter of 2016.

Presentation2

Looking ahead, economic forecasters expect faster GDP growth in the second quarter of 2016. Business investment, especially activity outside of the energy sector, is expected to rebound. In addition, early indications point to a stronger contribution of personal consumption expenditures to overall growth. However, though dissipating, downside risks from the international sector remain. The economic headwinds from the United Kingdom’s departure from the European Union could lower future growth prospects for the US. However, the economic effects from “Brexit” are likely to be minor.

 



Tags: , , , ,