The U.S. GDP growth for the first quarter was revised down sharply. In the first estimate, GDP growth was 0.1 % annualized rate. This figure dropped to -1% with the second estimate.
The change is important and implies a lower carryover for 2014. This latter was 1.2 % with the first estimate, it is now 0.9 %. With the same scenario for the rest of the year than before the revision, growth for 2014 can now be expected 0.3% lower.
The graph shows the GDP level and we clearly perceive the changing trend in the first months of 2014.
This decline, the highest since the first quarter of 2011 (-1.29 %) can be explained mainly by lower inventories than previously estimated. This is consistent with the idea of adverse climatic conditions during the first quarter. As it was hard to produce and to deliver, companies have reduced their inventories to meet demand.
The change in inventories has a more negative contribution, from -0.57% in the first estimate to -1.62 % for the second. This is the gray bar in the graph below.
The graph shows contributions to GDP growth. I put at the end of this post, the same chart with the figures of the first estimate.
The consumption contribution is equivalent to the first estimate and is rather strong. Investment figures are revised marginally upwards and its contribution increased from -0.44 % to -0.36 %.
Thus, domestic demand has a somewhat stronger impact than in the first estimate.
There was also an adjustment in net exports. Even if exports were better oriented, increase in imports has pushed downward the net exports contribution.
The graph below shows the adjustments between the main components of GDP.
The decline in activity even after revision seems consistent with a strong climatic hazard. Demand remained strong mainly on the consumer side but production conditions have deteriorated and companies have reduced their inventories to meet demand.
Figures that have been released at the end of the first quarter and in April and May, were stronger and it seems reasonable to consider that the first quarter was a temporary blip with no real persistence.
A strong rebound can now be expected as inventories are low. Nevertheless, growth figures will be mechanically lowered, probably close to 2.5 % for the full year 2014. This should not have a significant impact on the Federal Reserve behavior which saw the first quarter decline as transitory. There is no reason for the US Monetary Authority to change its scenario