1Q2011 Gross Domestic Product: Third Estimate

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The Bureau of Economic Analysis (BEA) inched up its estimate of 1Q2011 growth in real U.S. gross domestic product (GDP) by 0.1 percent, to a seasonally adjusted and annualized rate of 1.9 percent. Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed virtually all of the growth while government consumption expenditures (GCE) subtracted from it. Net exports (NetX) were a minor positive. Comparing the preliminary and final estimates shows that NetX contributed more to growth than first thought, but the downward revision to GCE nearly offset that increase.
 

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As the Consumer Metrics Institute pointed out, “The BEA raised its GDP price deflator for the annualized inflation rate to 2.0 percent (from the 1.9 percent utilized in the prior reports). The 2.0 percent inflation rate remains curiously low, especially given that their sister Bureau of Labor Statistics (BLS) reported that the non-seasonally adjusted Consumer Price Index (CPI-U) for all items grew more than 2.1 percent during the first quarter alone, which (when annualized) works out to be something like an 8.7 percent. Even the unadjusted year-over-year CPI-U change was 3.2 percent, with the number clearly accelerating over the past couple of quarters. Again, the "deflating" arithmetic used by the BEA means that an understated inflation rate translates into an overstated economic growth.”

“If the BLS CPI-U of 3.2 percent year-over-year inflation is used as the deflator, the reported 1.92 percent annualized growth rate shrinks to a 0.73 percent annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.55 percent rate. Using an annualization of the unadjusted BLS data for the change in CPI-U during just the first quarter (an alarming 8.72 percent annualized), the "real" GDP would be shrinking at a 4.36 percent annualized rate.”