Weak Consumer Spending Revised Down US GDP

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The initial estimate of the U.S. economic performance by the Commerce Department was 2.4 percent. However, on Wednesday 26 June, the Department revised the estimate down to 1.8 percent. This result is the weakest in two years and hopes are that the 2013 GDP will reach 2 percent.

 

The nation’s economy is mostly made up of consumer spending (70 percent) and the revised first quarter result showed weak consumer spending. From 3.4 percent, it was brought down to 2.6 percent.

 

Even though it is a weak performance, it is still a step forward on the 0.4 percent gain realized in the fourth quarter and consumer spending was the strongest in two years in the first three months of 2013.

 

According to what Millan Mulraine from TD Securities told the Financial Times, thoughts about the impact of fiscal austerity must have been underestimated due to the amount of lower consumption estimate. She also remarks that the year could have been started on a weaker footing than estimated.

 

First-quarter performance results show improvement over the previous 3 months. However, company profits fell sharply in the first 3 months of the year. Profits from current production fell to $28 billion in the first quarter, but showed an increase of $45.4 billion in the fourth quarter.

 

Regardless of the decline in the first quarter results, analysts view the results as positive.

 

Paul Ashworth, chief of U.S. economist for London-based Capital Economics stated that it is unclear to see the impact of the first quarter revisions on the second-quarter GDP growth forecast. However he remarks that the downward revision to the first quarter might need an upward revision to the second quarter.

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