Friday, May 29, 2009


Released on 5/29/2009 8:30:00 AM For Q1:09
Previous Consensus Consensus Range Actual
Real GDP - Q/Q change - SAAR -6.1 % -5.5 % -6.4 % to -5.1 % -5.7 %
GDP price index - Q/Q change - SAAR 2.9 % 2.9 % 2.8 % to 2.9 % 2.8 %

First quarter GDP was revised up moderately as the Commerce Department's first revision bumped up the quarter's growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.2 percent contraction. The revised estimate was worse than the consensus forecast for a 5.5 percent decrease. The upward revision was primarily due to less negative inventories and a smaller decline in exports.. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter.

On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent. The markets had expected an unrevised 2.9 percent increase. The headline PCE index was unrevised with a 1.0 percent decline while core PCE inflation also was unrevised with an annualized 1.5 percent increase.

Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.

Although GDP growth was not quite as good as markets expected, the shortfall was not that significant. Markets likely have put these numbers behind and are focusing on post-open numbers for the Chicago PMI and consumer sentiment index. The sentiment number may be what markets really care about today, given the importance of improved consumer sentiment for recovery to take hold any time soon.

Market Consensus Before Announcement
GDP for the first quarter initial estimate came in with a sharp 6.1 percent annualized drop and followed a 6.3 percent contraction the prior quarter. A key fact from the report was that the first quarter decrease was led by a $103.7 billion cutback in inventories. Real final sales of domestic product fell only 3.4 percent while real final sales to domestic purchasers declined 5.1 percent annualized (purchases by U.S. residents of goods and services wherever produced). Markets likely will be watching to see whether weakness remains in reduced inventory investment. The cutback in inventories is seen as helping set up stronger growth in coming quarters.

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

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