Q1 Real GDP Final Estimate: Details matter

U.S. real gross domestic product (GDP) fell at an annual rate of 2.9% in the first quarter. However, forward economic momentum is intact.

The Bureau of Economic Analysis (BEA) publishes GDP estimates in three rounds – advance, preliminary and final. The advance estimate of real GDP for the first quarter showed an annualized increase of only 0.1%, which was later revised to a 1.0% decline and finally a 2.9% drop in today’s report. 

Three factors account for such a sharp downward revision of real GDP growth in the final report: health care expenditures, net exports and change in inventories. 


The revision in health care expenditures accounted for a 1.2 percentage-point reduction in contribution to GDP. This is related to the lack of complete information about enrollments under the Affordable Care Act. The BEA had previously warned about the tentative nature of these estimates in earlier GDP reports. 

The downward revision of health care expenditures (-1.4% versus +9.1%) led to a reduction of consumer spending to only a 1.0% annualized gain in the first quarter from the preliminary estimate of a 3.1% increase. 

The drop in exports, reflecting weak demand from the nation’s trading partners, showed a bigger decline than the earlier estimate, and imports grew at a faster pace. Therefore, net exports resulted in a wider gap compared with the preliminary estimate. 

The reduction of inventories in the final revision shows a somewhat bigger change than the prior estimate. A partial reversal of the reduction in inventories is nearly certain in the second quarter. 

Incoming economic data strongly suggest that economic growth is back on track in the second quarter.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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