Q1 GDP Unexpectedly Drops 2.9%

Real gross domestic product fell at a surprisingly large seasonally adjusted annual rate of 2.9% in the first quarter of 2014, according to a Commerce Department report (link opens as PDF) released today. 

This is the Commerce Department's third and final revision to first-quarter GDP numbers, and its adjustment was far from welcomed by analysts. Although they had expected a downward revision from the second estimate of -1%, their -1.8% prediction proved overly optimistic. 

After growing 2.6% in the fourth quarter of 2013, absolute GDP is back down to just below the adjusted third-quarter 2013 level.

US Real GDP Growth Chart

According to the report, the main reasons for the downward revision included reduced personal spending and fewer exports. Neither is especially good news for the American economy. Personal spending is seen as a "bottom up" economic boost that signals suppliers to increase production, while exports are a major indicator of a nation's international economic balance.

The Commerce Department's report also includes an updated gross domestic purchase price index, which provide some relief from GDP growth numbers. The index's third revision remained exactly the same as the second, posting a 1.3% gain -- also exactly in line with analyst expectations .

For investors, today's report may be old news already. Excellent manufacturing, new-home sales, and consumer confidence reports released this week all point to better times for the current quarter. But with the first quarter's lackluster revision, the economy unfortunately has a longer road to recovery.

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