IRVINE, CA-Despite the cautiously optimistic outlook of many industry experts, examination of first-quarter GDP growth reveals that the economy may not be as strong as we had thought it would be by now, according to Auction.com Research. Peter Muoio, senior principal and economist with the firm, says that the final first-quarter GDP estimate hints at more weakness across key growth-driving components of the economy.
“The final estimate of first-quarter GDP growth was released earlier today, and it underscores a key message we have been repeating for years: initial estimates of important economic data are based on such incomplete data that they are too vulnerable to revision to be taken too seriously,” said Muoio in a prepared statement. “The final calculation for first-quarter real GDP growth was a 1.8% annual rate, significantly slower than the 2.4% earlier estimates.”
Muoio added that the revised report highlighted more weakness across the key growth-driving components of the economy. One factor in the downward revision was much weaker consumer spending, which is the largest segment of the economy.
“We had expressed surprise at the earlier estimates in the strength of consumer expenditures in the immediate aftermath of the tax hikes that started the year,” Muoio said. “Anecdotal reports from retailers had hinted at a negative impact, particularly from the increase in the payroll taxes, which hit a large swathe of US households, many of whom statistics show are living from paycheck to paycheck with little or no financial cushion. The Fed-induced equity boom (until recently) did little to improve the financial position of these households.”
Also, since last year, the firm warned of potential weakness in trade flows resulting from the recession in much of Europe, economic stall in core Europe and slowing in China. The final release now shows that exports and imports declined in the first quarter, dragging down GDP growth. “Exports were revised from adding 1% to real GDP growth to subtracting from it, which is more in-line with the tepid global economic climate.”