Monday, September 1, 2014

GDP just shrank for the first time in three years

Uh oh: the US economy just shrank for the first time in three years.

Economic output fell at a 1 percent annual rate in the first quarter, according to a new estimate from the Commerce Department. That's the first contraction since early 2011.

This is the department's second estimate of GDP for the first quarter, and it's even more disappointing than the first guess. At the end of April, the government reported economic output had nearly come to a halt, growing at only a 0.1 percent annualized rate.

The latest estimate is also more dismal than experts had guessed — their consensus estimates had been at -0.5 percent, according to Bloomberg. Many economists expected a bad first quarter not because of fundamental economic weakness, but because of an unusually harsh winter.

The Commerce Department revises its estimates as it receives more complete data. And new data the government has received in the last month has shown that business investment in inventories — goods that have not yet been sold to customers — fell by even more in the first quarter than the government had previously thought.

Even more troubling, another measure of economic growth — gross domestic income — fell by 2.3 percent last quarter. GDI and GDP should theoretically be equal to each other and broadly track together, but they rarely match up perfectly in these estimates of economic output. However, that GDI fell even more than GDP last quarter is yet more evidence that the economy really took a beating over the cold, snowy winter, and may even signal that the economy in fact shrank even more than 1.0 percent.

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