The upward revision in first quarter real gross domestic product (GDP) was slightly larger than expected, to 6.1% from 5.6%, instead of the 5.8% gain that we at S&P MMS had estimated. In addition, the growth rate for the chain price index was raised to 1.3% from 1.0%. Overall, the revised data for the quarter were notably stronger than what was available before, and is clearly stronger than the strangely pessimistic forecasts prevailing in the markets.
Net exports were revised upward by $9 billion, which is even more than was signalled by the last goods and services trade report. The equipment spending component was the biggest surprise to us, with an upward revision of $6 billion instead of the $2-$3 billion adjustment implied by the revised factory figures for the quarter.
The huge inventory contribution to first quarter GDP growth was revised lower as expected, to a $92 billion contribution. The new data, which reveal a 2.6% final sales gain versus the prior 2.0% increase, leave a more solid trajectory for growth as we enter the second quarter.
Our second quarter estimate will remain at 3.0%, with the likelihood that growth will accelerate again in the quarter as inventories again boost GDP in response to plummeting ratios of inventories-to-sales. The slowdown in the second quarter will likely prove temporary.
From Standard & Poor's Global Markets