The U.S. Economy expanded less than expected in the first
quarter, according to the Bureau of Economic Analysis. Economists
surveyed by Bloomberg were expecting a reading of 3.0 percent
with estimates clustered around the number and the range of
estimates of the survey encompassing 2.3-3.3 percent.
The BEA noted: "The increase in real GDP in the first quarter
primarily reflected positive contributions from personal
consumption expenditures (PCE), private inventory investment,
exports, residential investment, and nonresidential fixed
investment that were partly offset by negative contributions from
federal government spending and state and local government
spending. Imports, which are a subtraction in the calculation of
As the BEA stated, federal spending was a drag on GDP in the
first quarter due to the Fiscal Cliff and the Sequester.
Government spending decreased 8.4 percent decreased 8.4 percent
in the first quarter, compared with a decrease of 14.8 percent in
the fourth. National defense spending decreased 11.5 percent,
compared with a decrease of 22.1 percent in the fourth quarter
while non-defense spending decreased 2.0 percent in contrast to
an increase of 1.7 percent in the fourth quarter.
Positively, private consumption grew strongly in the quarter,
showing that excluding fiscal tightening, the underlying economy
expanded modestly. The personal consumption component of GDP
expanded 3.2 percent vs. 1.8 percent in the fourth quarter with
durable goods purchases slowing to 81. percent growth from 13.6
percent growth in the fourth quarter. The services economy also
saw an uptick in the fourth quarter, growing a strong 3.1 percent
vs. the fourth quarter's 0.6 percent rate of growth.
Real exports of goods and services increased 2.9 percent in
the first quarter, in contrast to a decrease of 2.8 percent in
the fourth. Real imports of goods and services increased 5.4
percent, in contrast to a decrease of 4.2 percent in the fourth
Negatively, inventories grew substantially in the first
quarter. Inventory growth is a negative for future growth because
it generally implies that in the next quarter, production will
slow as inventories are drawn down. This phenomenon is known as
the inventory cycle and is one reason for the quarter-to-quarter
cyclicality of the economy.
In the first quarter, inventories added 1.03 percentage points
to real GDP after subtracting 1.52 percentage points in the
fourth quarter. Private businesses increased inventories $50.3
billion in the first quarter, much more than the $13.3 billion
increase in the first quarter. Real final sales, GDP less
inventory growth, grew 1.5 percent in the first quarter as
compared to 1.9 percent growth in the fourth quarter.
Income, Outlays, and Savings
Personal incomes grew 3.2 percent in the first quarter, slower
than the growth rate seen in the fourth quarter of 8.1 percent.
The decline reflected a downturn in dividends and increased
contributions to government social programs as part of tax hikes
such as the expiration of the payroll tax holiday. Real
disposable income decreased 5.3 percent in the quarter vs. a gain
of 6.2 percent in the fourth quarter.
Outlays increased 4.1 percent in the quarter, faster than the
rate seen in the fourth quarter, supporting the personal
consumption data that consumption was strong in the quarter. The
personal savings rate plummeted in the first quarter to 2.6
percent from 4.7 percent in the fourth quarter. Overall, the GDP
report had a bad headline number that missed estimates followed
by some negative internals.
S&P 500 futures traded lower by 5 points after the release
to 1,576.70, slightly below where they were before the release.
U.S. 10-year bond yields ticked lower by 3 basis points to 1.67
percent while the 2-year bond yield fell 1 basis point to 0.22
percent. The Dollar Index fell sharply by 0.3 percent after
trading near flat before the release on weakness against the yen,
the Swiss franc, the pound, and the euro. Commodities were also
lower as oil futures traded lower and gold ticked higher to
$1,468.80 on the front-month future.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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