GDP: Final Estimate For First Quarter Is Much Worse Than Expected
The Bureau of Economic Analysis (BEA) released its third and final estimate of U.S. GDP this morning and it was much worse than anticipated.
The BEA publishes three estimates for GDP, the first estimate is released about 30 days after the quarter ends. The next two follow about 30 and 60 days later. Hence, the third and final estimate was released this morning which revised GDP down to a negative 2.9% in the first quarter of 2014.
Related: What is GDP and Why is it Important?
The first estimate (April 30) indicated that the economy grew by a mere 0.1%. The second estimate (May 29) revised this to a negative 1.0%. Today, the estimate which will remain in the record book indicated that the economy contracted by nearly 3.0%. This sent stock futures lower on the news.
According to the report, the primary cause of the substantial negative revision was due to, “negative contributions from private inventory investment, exports, state and local government spending, nonresidential fixed investment, and residential fixed investment.”
As I mentioned in my most recent article, “Is There A Problem Brewing In The Stock Market?” stocks cannot continue to rise in the face of a weak economy. At some point, a slow economy will hurt corporate profits, which could be a catalyst for falling stock prices. Was the poor report due to the weather?
Of course, we’ll have to wait for the second quarter GDP estimate to know. However, if the second quarter is also negative (which is not expected), we’ll have a textbook recession, and stocks generally do not fare well leading up to and during the early stages of a recession. Stay tuned.