Economic Growth in 1st-quarter Slower than Previously Estimated

The Bureau of Economic Analysis (BEA) estimates that real gross domestic product (GDP) increased at an annual rate of 1.8% during the 1st-quarter 2013. Today’s release is the 3rd estimate of first quarter GDP. This represents a decrease in the rate of growth from BEA’s second estimate of real GDP growth of 2.4%.

At present, the growth gap for the current recovery compared to the average of other post-World War II recoveries stands at $1.2 trillion (2005$). Compared to the Reagan recovery of the 1980s, the real growth gap stands at $1.7 trillion (2005$). Since the recession ended in the 2nd-quarter 2009 real GDP has increased a total of 8.1% or at an annual rate of 2.1%. Real GDP increased by a total of 17.8% on average in other post-World War II recoveries or at an annual rate of 4.4%. During the Reagan recovery, real GDP increased by a total of 21.3% or at an annual rate of 5.3% over a comparable period. See charts at the end of this email.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment that were partly offset by negative contributions from federal government spending, state and local government spending, and exports. Imports, which are a subtraction in the calculation of GDP, decreased.

The downward revision to estimated real GDP growth was driven by a downward revision to estimated PCE growth. BEA estimates that real PCE grew at an annual rate of 2.6% in the 1st-quarter compared to its prior estimate of 3.4%. PCE were estimated to add 1.83 percentage points to the 1st-quarter growth rate compared with the previous estimate of 2.40 percentage points.

Big Changes Coming in July

On Wednesday, July 31, BEA will release its advance estimate of 2nd-quarter GDP. The July 31 release will include the 14th comprehensive revision of the National Income and Product Accounts (NIPA) covering the period 1929 – 1st-quarter 2013. This year’s revision will include several major improvements to the accounts, including expanded capitalization of intellectual property products and a change to accrual accounting for defined benefit pension plans.

The revision will also include a change to 2009 as the reference year for the chained-dollar estimates from 2005. In other words, real GDP will be expressed in terms of 2009 dollars instead of 2005 dollars. More detailed information on the changes can be found on the BEA website at: http://www.bea.gov/national/an1.htm. Additionally, the JEC Republican staff will provide more information on the implications of the revisions prior to the July 31 release date.