March quarter US GDP was revised sharply lower on the back of a significantly lower inventory investment. The initial print of +0.1% (annualised) was revised down to -1.0%. However, all the signs are pointing to a strong bounce back in growth in the second quarter of the year.
The downward revision to inventories accounted
for the entire GDP revision. In total,
inventories knocked 1.6 percentage points off GDP in the quarter. The good news is that much of the inventory adjustment
we expected to play out this year, and with that the drag on growth, has now already
As I pointed out following the release of
the advance estimate the growth story in the quarter was not as bleak as the headline
suggests. Domestic demand came in at an
annualised 1.6% in the quarter slightly higher than the initial estimate of
1.5%. Consumer spending posted a solid
Nothing in the revision changes our view
that the weak quarterly result was due to lower inventory accumulation and the
poor weather at the start of the year.
Indeed partial activity data was already improving in the March month
and on into April. That makes me happier
with my 4.0% (annualised) forecast for June quarter growth. Annual average growth for calendar 2014 is expected
to come in at 2.3%.