–Source Data Seems Impacted by High Energy Prices; Core PCE px +1.4%

By Joseph Plocek

WASHINGTON (MNI) – The U.S. Q1 real GDP revision printed +1.8%, the
same growth rate in the original estimate, as a downward revision to
consumption offset higher inventories and business structures, and net
exports cut less.

Real final sales tanked to +0.6% in the latest revision (was +0.8%
previously), their worst showing since Q3:2009. Final sales slowed as
inflation jumped and as Federal spending fell an unrevised 7.9%.

A lowered consumption number after revision reflects slower sales
of motor vehicles and fuels & lubricants, as well as less spent on
electricity & gas services. Both were due to high energy prices that
appeared in source data collected with a lag by the Energy Department.

The other revisions were from additional Commerce Department source
data and were included in monthly reports. Better structures,
inventories and trade data had analysts believing that Q1 GDP could be
revised higher

Overall, the picture from the GDP report remains that consumption,
inventories, exports and nonresidential investment are growing, but at a
moderate pace. Government spending and housing remain drags, and could
remain so for the medium-term future as budgets are cut and the housing
market works through excess supply.

Inflation measures remain worse. PCE core prices printed +1.4%
(-0.1 point from the original estimate) after +0.4% in Q4, and overall
GDP prices printed +1.9% (unchanged from the original). Oil and gasoline
prices recently retreated, and this could help ahead.

Income data showed Q4 wages were revised down $24.6 billion, so
there was less spending power to propel Q1 growth. Real disposable
personal income was +1.1% in Q4 and +0.8% in Q1. The prior estimates put
DPI at +1.9% in Q4 and +2.9% in Q1.

Early Q2 sales data seem to remain firm, but the latest report
confirms the economy slowed. The probability of a fast growth rebound to
more than a modest trend seems to be lessened by this report, which
shows definitive consumer retrenchment in the face of high energy
prices.

Corporate profits from current production were up $21.9 billion
after +$38.2 billion in Q4. Pre-tax profits were +$113.8 billion in Q1
after -$48.3 billion in Q4.

Domestic profits fell at private financial firms but jumped from a
loss in Q1 to a $45.8 billion gain at nonfinancial corporations. The
latter was enhanced by payments from abroad.

Annual revisions for GDP are scheduled for release July 29.

GDP Components: Q2 Q3 Q4 final Q1 Prelim Q1 Rev
Real growth +1.7% +2.6% +3.1% +1.8% +1.8%
Real final sales +0.9 +0.9 +6.7 +0.8 +0.6
PCE +2.2 +2.4 +4.0 +2.7 +2.2
Nonres fixed invest +17.2 +10.0 +7.7 +1.8 +3.4
Res fixed invest +25.7 -27.3 +3.3 -4.1 -3.3
Net Exports Contrib cut 3.50 cut 1.70 add 3.27 cut 0.08 cut 0.06
Inventory Contrib add 0.82 add 1.61 cut 3.42 add 0.93 add 1.19

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