US: Downward revision to retail sales responsible for GDP miss

Commenting on the US growth data, "GDP growth slowed to 1.1% q/q annualised, according to the advance estimate, which was well below our and consensus forecasts for a 2% expansion, and down from 2.6% growth in Q4," said Bill Diviney, Senior Economist at ABN Amro.

Consumption still grew very strongly in the first quarter

While the main drag came from a drop in inventories (which subtracted a whopping 2.7pp from growth), a large downward revision to retail sales also meant consumption was not as strong as expected. Indeed, the Atlanta Fed’s GDP Now tracker had already suggested a big miss the day prior to the release of the GDP report, due to the revision to retail sales. Despite that downward revision, consumption still grew very strongly in the first quarter, by 3.7% annualised, with a 16.9% surge in durable goods consumption responsible for the strength (services consumption growth was much more moderate at 2.3%).

The exceptional strength in goods consumption has been a surprise in the first quarter, given that for much of last year goods consumption had been on a cooling trend. Still, looking at more recent high frequency data does suggest goods consumption has since resumed its cooling trend, with for instance Redbook weekly department store sales slowing sharply of late. At the same time, there has been a tendency for repeated downward revisions to consumption data in the post-pandemic period, likely reflecting difficulty in measuring price effects in the current high inflation environment. As such, it would not be a surprise if the Q1 strength in consumption is further revised away in future GDP estimates.

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