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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The United States has seen a significant downward revision to its retail sales figures for the third quarter of 2019, causing a significant miss in its overall GDP estimates, according to data from ABN Amro.
In the third quarter of 2019, the US posted a GDP growth of 1.9 percent, significantly below the 2.1 percent growth projected for the quarter. This is a direct result of a downward revision of US retail sales posted by the US Department of Commerce.
The US Department of Commerce reported that retail sales fell to just 0.1 percent in the third quarter of 2019, compared to an initial estimate of 0.9 percent. This revision was even more damaging as it followed a downward revision to the second quarter of 2019, when retail sales fell to a surprising 1.7 percent from the initial estimate of 1.9 percent.
The downward revision to retail sales was attributed to weak spending on clothing, electronics, and other general merchandise, which all fell for the quarter. This hit to consumer spending was also compounded by a decline in auto parts sales, further dragging down overall spending.
The downward revisions to retail sales have caused a significant miss in the US GDP estimates, and has been reflected in ABN Amro’s revised forecast. The bank now expects growth of 2.0 percent in the fourth quarter of 2019 and 2.1 percent in the full year. This is lower than the initial forecasts of 2.2 percent and 2.5 percent, respectively.
The downward revisions to US retail sales have been a cause for concern and are expected to remain a drag on the US economy in the near term. With the US economy already under pressure from trade wars and Brexit uncertainty, this weak spending could put further pressure on GDP growth in 2020.