Retail Shock Hurts US GDP…Or Does It?

05/26/2011 4:11 pm EST


Jim Jubak

Founder and Editor,

There was a nasty surprise in this morning’s revision to first-quarter US GDP numbers.

Not on the top line, really. Real (meaning after subtracting inflation) GDP growth for the quarter stayed at 1.8% in these revisions, exactly the same as in the last estimate. (All GDP numbers are estimates until the final reading comes in about a year after the quarter is over. Of course, nobody cares by that point.)

Economists had been expecting that the revision would take growth up to 2% for the quarter.

As economists had expected, increases in exports, nonresidential fixed investment, and inventories pushed the GDP growth figure upwards in this revision. And also as expected, an increase in imports took back some of those gains.

What economists hadn’t been expecting, however, was a downward revision to personal consumption expenditures. Economists had projected that this number would climb, because preliminary reports on retail sales suggested that consumers had upped their spending.

But the revision actually took retail sales down from the 0.8% growth estimate in the last read on GDP to just 0.6% growth. Both of these figures were much, much lower than the 6.7% growth recorded in the fourth quarter of 2010.

Real, final sales growth in the first quarter of 2011 has, by these figures, dropped back to where it was in the third quarter of 2009. That was the first quarter after the recession ended.

If you believe US economic growth isn’t slowing, you can say these figures are just a single quarter and represent a shock to consumer spending from higher gasoline prices. Growth should rebound next quarter.

But if you believe US economic growth is slowing, you can argue that increases to inventories accounted for the bulk of growth in this quarter. That’s not good—unless inventories get sold, inventory growth stops. This quarter, then, is a sign of a slowing for the rest of the year.

The unfortunate aspect to these numbers is that I think you can make either case. In other words, if you’re looking for clarity on where the US economy is headed, you won’t find it in these numbers.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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