Let’s look at the details.
The first-quarter was still weak but does get an upgrade with today’s third estimate, now at a 1.4 percent annualized rate vs 1.2 percent and 0.7 percent in prior estimates. Consumer spending also gets an upgrade, to 1.1 percent from prior estimates of 0.6 percent and 0.3 percent. This had been the weakest consumer showing in 7 years but is now the weakest in 4 years.
Slower inventory growth stripped 1.1 percentage points from the first quarter rate. Looking at final sales, which exclude inventories, growth was very respectable at 2.6 percent. Both residential investment and business investment were the big positives that offset consumer weakness, adding 0.5 points and 1.2 points respectively. Government purchases subtracted 0.2 points as did net exports.
The first quarter turned out satisfactory enough and will take some of the heat off of the second quarter, where a big rebound was the initial expectation which, given continued weakness in consumer spending, has since eased back a bit.
Apparently, 1.4% is the news measure of satisfactory.
Bond yields are up for the second day, with the 30-year yield at 2.81, having touched 2.84 earlier in the day.
Diving Into the Revisions
- Weak consumer spending grew at a meager +0.75% annualized rate during the quarter, up +0.31 from the previous estimate but still down a significant -1.65% from the prior quarter.
- The headline contribution from consumer expenditures for goods was still a miniscule +0.11% growth rate (down -1.18% from the prior quarter).
- The contribution to the headline from consumer spending on services strengthened as it was revised upward +0.27% to +0.64% (although that was down -0.47% from the prior quarter). The entirety of the increase came in upward revisions to the costs of healthcare and insurance (+0.38%). The combined consumer contribution to the headline number was +0.75%, down -1.65% from 4Q-2016.
- The headline contribution from commercial private fixed investments was revised downward -0.14% to +1.71%, although that remained +1.25% higher than the prior quarter. That growth was primarily in non-residential construction.
- Inventory contraction deducted -1.11% from the headline number, a downward revision of -0.04% from the previous estimate and down -2.12% from the prior quarter. It is important to remember that the BEA’s inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.
- Governmental spending was still reported to be contracting, although at a revised lower annual rate (at -0.16%, down -0.19% from the prior quarter).
- Exports were revised upward +0.13% to a +0.82% contribution to the headline, a +1.37% improvement from the prior quarter.
- Imports were revised downward (-0.04%), and they subtracted -0.59% from the headline number (up +0.68% from the prior quarter). In aggregate, foreign trade added +0.23% to the headline number after subtracting -1.82% during the prior quarter.
- The “real final sales of domestic product” grew at an annualized 2.53%, up +0.30% from the previous estimate and up +1.46% from the prior quarter. This is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory contraction.
- Real per-capita annual disposable income was essentially unchanged. At the same time the household savings rate was revised downward again by -0.1%. It is important to keep this line item in perspective: real per-capita annual disposable income is up only +7.32% in aggregate since the second quarter of 2008 — a meager annualized +0.81% growth rate over the past 35 quarters.
Yield on the long bond is up for the second day, but the monthly trend is pretty clear. The bond market does not think much of this recovery and neither do I.
Mike “Mish” Shedlock