With everyone's attention focusing on what the state of the economy is currently as opposed to last quarter, today's 2nd revision of Q1 GDP was unlikely to get much attention, and that's why the fact that according to the 2nd estimate of first quarter growth the US economy contracted at a 5% annualized pace will have no impact on markets.
With Q1 GDP initially reported a sinking -4.8%, this number has now been revised to -5.0%, following an upward revision to consumer spending offset by a sharp drop in private inventories.
The changes between the first and second estimate are as follows:
- Personal Consumption revised higher: from -5.26% to -4.69%
- Fixed Investment unchanged: from -0.43% to -0.41%
- Change in Private inventories sharply lower: from -0.53% to -1.43%
- Exports unchanged at -1.02%
- Imports also largely unchanged: from 2.32% to 2.34%
- Government Consumption was also flat: from 0.13% to 0.15%.
Looking below the surface, we find that personal consumption predictably collapsed 6.8% in 1Q after rising 1.8% prior quarter, but was better than the -7.6% initial forecast. Nonresidential fixed investment, or spending on equipment, structures and intellectual property fell 7.9% in 1Q after falling 2.4% prior quarter.
At the same time, the GDP price index rose 1.4% in 1Q after rising 1.3% prior quarter; core PCE meanwhile declined from 1.8% in the original estimate to 1.6%, missing estimates.
Today's release also revealed the state of corporate profits in Q1, which according to the BOEA decreased 13.9% at a quarterly rate in the first quarter after increasing 2.6% in the fourth quarter. On a Y/Y basis, corporate profits decreased 8.5% in the first quarter after rising 2.2% prior quarter.
Profits of domestic nonfinancial corporations decreased 14.3% after increasing 4.8%. Profits of domestic financial corporations decreased 16.6% after increasing 0.2%. Profits from the rest of the world decreased 10.8 percent after decreasing 0.3 percent.
While this was the worst print since the financial crisis, the real question is what Q2 GDP will be, where estimate range from -30% to as much as -50% annualized.