Blips count, too

Noise in US GDP revision also contains a signal

There's a signal amidst the noise surrounding the revised US GDP number for the first quarter. The second reading shows a one per cent fall rather than 0.1 per cent growth. Bad weather is largely responsible, causing lower inventories and exports. But even this blip will reduce the annual average increase, making the IMF forecast of 2.8 per cent look out of reach.

Most analysts expected a downward revision to only 0.5 per cent negative growth, but the bigger drop isn't as bad as it may seem. Lower inventories accounted for most of it, taking 1.6 percentage points off GDP expansion rather than the initial estimate of 0.6 percentage point.

The culprit was a slower accumulation rate: Inventories rose only $49 billion in the first quarter after a fourth-quarter uptick of $112 billion. They still went up, however, suggesting a recession isn't likely.

Fewer exports, meanwhile, dragged down growth 0.9 percentage point, slightly more than the initial estimate.

Overall, though, final sales in the first quarter increased 0.6 per cent, showing the United States economy is reasonably healthy, if more than a bit sluggish.

The world may be in for a big disappointment, though. The IMF's World Economic Outlook from April projected a 2.8 per cent rise in America's 2014 GDP.

That looks like a stretch at this point, given it means the US economy would have to expand at an average rate of about 5.1 per cent over the year's remaining three quarters. Even a more realistic 3.5 per cent would leave the nation with only 2.2 per cent average annual growth.

None of this necessarily spells trouble. If anyone needed a reason to feel let down, however, the latest figures provide it.