| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter - Annual Rate | 1.5% | 1.2% to 1.6% | 1.3% | 1.6% |
| Personal Consumption Expenditures - Annual Rate | 2.2% | 2.2% to 2.5% | 2.0% | 2.5% |
Highlights
The second estimate of first quarter GDP is revised down to up 1.3 percent from the previously reported 1.6 percent. First quarter growth is below the consensus of up 1.5 percent in the Econoday survey of forecasters. The revision is mainly due to a downward revision in personal consumption expenditures.
Personal consumption rose 2.0 percent in the first quarter 2024 from the previous 2.5 percent gain in the advance estimate. Spending on durables is revised sharply lower to a decrease of 4.1 percent, nondurables spending is down somewhat to a decline of 0.6 percent, and spending on services is only slightly revised down to up 3.9 percent. Government consumption has a small upward revision to up 1.3 percent after the previous advance estimate of 1.2 percent.
Other revisions from the advance to the second estimate for the first quarter are minor. Notable is that fixed investment is revised higher to up 6.0 percent after the previous estimate of up 5.3 percent. While nonresidential investment has a small upward revision to up 3.3 percent from 2.9 percent, residential investment was revised substantially upward to up 15.4 percent from up 13.9 percent.
The second estimate of first quarter GDP includes the change in gross domestic income (GDI) at up 1.5 percent in the first quarter. This is a modest rise in GDI that is consistent with the GDP increase and points to consistent underlying economic gains.
Fed policymakers have been anticipating moderation in GDP gains for some time and are anticipating a period of growth below their longer-run growth forecast of 1.8 percent as part of the fight against inflation. The first quarter 2024 increase of 1.3 percent is the softest since down 0.6 percent in the second quarter 2022. However, very early GDP Nowcasts for the second quarter 2024 point to growth above 2 percent. At present, the US economy is continuing to expand despite restrictive monetary policy and with little prospect of interest rate cuts in the immediate future. The FOMC will be reluctant to risk overheating the economy by reducing interest rates as long as there is little sign of a recession on the policy horizon and inflation remains stubbornly above the Fed's 2 percent objective for price stability.
Personal consumption rose 2.0 percent in the first quarter 2024 from the previous 2.5 percent gain in the advance estimate. Spending on durables is revised sharply lower to a decrease of 4.1 percent, nondurables spending is down somewhat to a decline of 0.6 percent, and spending on services is only slightly revised down to up 3.9 percent. Government consumption has a small upward revision to up 1.3 percent after the previous advance estimate of 1.2 percent.
Other revisions from the advance to the second estimate for the first quarter are minor. Notable is that fixed investment is revised higher to up 6.0 percent after the previous estimate of up 5.3 percent. While nonresidential investment has a small upward revision to up 3.3 percent from 2.9 percent, residential investment was revised substantially upward to up 15.4 percent from up 13.9 percent.
The second estimate of first quarter GDP includes the change in gross domestic income (GDI) at up 1.5 percent in the first quarter. This is a modest rise in GDI that is consistent with the GDP increase and points to consistent underlying economic gains.
Fed policymakers have been anticipating moderation in GDP gains for some time and are anticipating a period of growth below their longer-run growth forecast of 1.8 percent as part of the fight against inflation. The first quarter 2024 increase of 1.3 percent is the softest since down 0.6 percent in the second quarter 2022. However, very early GDP Nowcasts for the second quarter 2024 point to growth above 2 percent. At present, the US economy is continuing to expand despite restrictive monetary policy and with little prospect of interest rate cuts in the immediate future. The FOMC will be reluctant to risk overheating the economy by reducing interest rates as long as there is little sign of a recession on the policy horizon and inflation remains stubbornly above the Fed's 2 percent objective for price stability.
Market Consensus Before Announcement
Consensus for the second estimate of first-quarter GDP is 1.5 percent growth versus what was a lower-than-expected growth rate of 1.6 percent in the first estimate. Personal consumption expenditures, at 2.5 percent growth in the first estimate, are expected to slow to 2.2 percent in the second estimate.
Definition
Gross Domestic Product represents the total value of the country's production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners and government entities. Data are available in nominal and real (inflation-adjusted) dollars, as well as in index form. Economists and market players always monitor the real growth rates generated by the GDP quantity index or the real dollar value. The quantity index measures inflation-adjusted activity, but we are more accustomed to looking at dollar values.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Description
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
