Preliminary Q1 GDP Shows 0.7% Contraction

WASHINGTON — The U.S. first quarter real gross domestic product revision was not as bad as expected, showing a 0.7% contraction pace in the face of severe winter weather, but the second quarter rebound so far appears limited.

In the Q1 growth revision, the trade sector cut more and inventories added less based on new source data. In addition, new construction data showed a bigger gain in residential spending. The revision was a large 0.9 point downward for overall GDP.

Personal consumption expenditures were revised lower on less cell phone services spending. Services represented over 90% of the addition to growth from consumption, confirming that bad weather probably was mainly responsible for the slowdown.

Nonresidential structures investment, where a debate about residual seasonality is raging, cut 0.67 point from growth, as it fell 20.8%. That was its worst showing since Q1:2011.

Additional pockets of weakness in Q1 included a 1.0% drop in federal defense spending and a 1.8% drop in state and local spending.

The GDP price index was off 0.1%.

But assuming some additional adjustments for some of the components of GDP, the fact remains that Q1 was weak. In addition, source data for Q2 so far shows that the GDP rebound is limited — it is probably running at a plus-2% handle.

Corporate profits data were weak in Q1, and the estimates included the expiration of the 50% bonus depreciation provision and stepped-up Section-179 expensing limits. Profits from current production (includes economic depreciation and inventory adjustments) dropped $125.5 billion but profits before tax were up $65.5 billion.

Profits fell at domestic and overseas industries, and at financial and nonfinancial corporations.

Q4 wages were revised $22.7 billion higher, showing additional growth. So consumers might revive ahead.

On July 30 the annual revisions for GDP will be released. At that time it is possible the Commerce Department will revise its adjustments for the major sectors. Revisions will go back three years.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.
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