Q1 GDP Revision Reveals Big Deterioration In Personal Spending In “Kitchen Sink” Report

Of all the economic reports, the BEA’s periodic update of US GDP is the most useless because not only is it politically motivated, but it gets constantly revised so much that by the time we get a somewhat accurate description of how strong the economy is, it is already one – if not two quarters – later. Today’s second estimate of Q1 GDP – a quarter which ended almost two months ago – is just such an example. 

Moments ago the BEA reported that in Q1, US GDP shrank at a 0.2% annualized pace, a modest improvement from the -0.3% initial print which was also the median consensus.

According to the BEA, GDP was revised up 0.1% from the advance estimate, reflecting an upward revision to investment that was partly offset by a downward revision to consumer spending. 

While there were few notable changes between the initial report and the revision, the most notable revision was in personal consumption which was cut by a third from 1.7% increase in the first print to  just 1.2% in the latest, making this the weakest quarter for personal spending since Q2 2023.

Here are some other notable changes:

• Personal consumption contributed just 0.8% to the bottom line GDP print, down from 1.21% in the first estimate and down sharply from 1.21% in Q4.
• Fixed Investment came at 1.34%, unchanged from the preliminary print, and largely driven by major data center investments
• The change in private inventories largely offset the drop in personal consumption, adding 2.64% to the final GDP print – the largest contribution by far – from 2.25% initially.
• Trade or net exports (exports less imports), was generally in line, subtracting a whopping 4.9% from the GDP number, a modest deterioration from the 4.84% original print.
• Finally, government subtracted 0.12% from the GDP number, an improvement from the -0.25% original decline.

And visually:

The sharp revision in personal consumption meant that Real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment, often viewed as a much more accurate indicator of actual growth, increased 2.5% in the first quarter, revised down 0.5% point from the previous estimate.

While the GDP data was stale, the inflation data was especially so, even if there were even fewer changes here:

1. GDP price index rose 3.7%, unchanged from the original number and in line with estimates
2. Core PCE (ex food and energy) was 3.4%, a fractional drop from the 3.5% originally reported.

Overall, the report painted an uglier picture of the US economy in Q1, although it is likely a “kitchen sink” because in Q2 we expect that the bullwhip from the jump in imports (a boost to GDP) coupled with the deferred surge in personal consumption to propell Q2 GDP to 3% if not higher.