1Q2011 Gross Domestic Product: Second Estimate

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The Bureau of Economic Analysis (BEA) left its estimate of 1Q2011 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.8 percent -- well below expectations of a revision to 2.2 percent. Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed to growth while government consumption expenditures (GCE) subtracted from it. Net exports (NetX) were a “wash.” Comparing the advance and preliminary estimates shows that PCE contributed less to growth than first thought, while PDI contributed more. Without the upward revision in private inventories (now pegged at 1.2 percent, considerably higher than the advance estimate of 0.1 percent), 1Q growth would have been below 1 percent.
 

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The Consumer Metrics Institute continues to question (legitimately, in our opinion) the reliability of the deflator used to arrive at the real GDP estimate; the deflator removes the influence of price changes from the growth estimate.

“The importance of the price deflator used by the BEA cannot be overstated. In calculating the "real" GDP the BEA continued to use an overall 1.9 percent annualized inflation rate, which is substantially lower than the inflation rates being reported by any of the BEA's sister agencies. The mathematical implications of the deflator are simple: a lower deflator creates a higher "real" GDP reading. If April's CPI-U (as reported by the Bureau of Labor Statistics) of 3.2 percent year-over-year inflation is used as the deflator, the reported 1.84 percent annualized growth rate shrinks to a 0.56 percent annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.63 percent rate. If instead of the year-over-year CPI-U we were to use the annualized CPI-U from just the first quarter (5.7 percent), the "real" GDP would be shrinking at a 1.82 percent annualized rate, and the "real final sales of domestic products" would be contracting at a recession-like 3.01 percent.

“Although the overall reported headline rate for the GDP remained essentially unchanged, the numbers reflected somewhat weaker consumer contributions and anemic "real final sales" -- all while using a price deflator that strains [credulity]….”