Q1 11 real GDP was unchanged in the second estimate, rising 1.8% q/q (saar), below our forecast (2.0%) and consensus (2.2%) estimates. The underperformance relative to our expectation came from softer growth in real consumption than first recorded. The significant drags on growth from structures investment and government spending largely remained in place, although the second estimate showed the decline in structures investment to be less acute than the first release estimate.
Real consumption growth was revised down from 2.7% to 2.2%, mainly reflecting softer goods consumption. Goods consumption was revised down from 4.8% to 3.5% as both durable and nondurable goods consumption was softer than originally reported. However, the 8.9% rate of durable goods consumption is still a healthy rate of growth and the behavior of durable consumption does not yet indicate that a more lasting change in consumption behavior is in store. When consumer spending deteriorates in a sustained way, it is typically led by drops in spending on durables. Within investment, the pattern of a sharp decline in structures investment but strong growth in equipment in software expenditures remained in place, with the revisions pointing towards a less sharp contraction in structures investment of 16.8% versus 21.7% in the first release. Equipment and software spending was unchanged at up 11.6%. We continue to believe that the drop in residential investment and structures investment in particular partly reflects the effect off bad weather early in the quarter. Within the trade numbers, export growth was revised higher to 9.2% (from 4.9%) and import growth was revised up to 7.5% (from 4.4%), leading to a slightly lower drag from trade in the second release as we had expected. Finally, government expenditures were largely unchanged relative to the first release, down 5.1% and shaving 1.1% off of GDP growth during the quarter. On the inflation front, the GDP price index was unchanged at 1.9% q/q (saar) and the PCE price index remained at 3.8%.
Altogether, the second release confirms the soft start to the year for GDP growth. We continue to believe some of the main sources of weakness, the declines in structures investment and defense spending in particular, are generally supportive of our view that temporary factors played a significant role in the slowdown, and we look for GDP growth to rebound in Q2. However, the slowdown in consumption was sharper than reported in the first release, suggesting that the surge in headline inflation from higher food and energy prices in the first quarter cut into real spending more than originally estimated.
BARCLAYS CAPITAL
ECONOMICS RESEARCH | INSTANT INSIGHTS