Economy Contracted 0.7 % in First Quarter, Partly Due to Rising Imports

Ali Meyer | May 29, 2015 | 9:48am EDT
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Rising imports are partly to blame for a downward revisions in first-quarter real Gross Domestic Product, the Bureau of Economic Analysis said on Friday, May 29, 2015.

( – Initial estimates of positive economic growth in the first quarter of 2015 have now turned negative.

The U.S. economy actually shrank in the first quarter of 2015 as real gross domestic product (GDP) declined at an annual rate of 0.7 percent, according to the Obama administration’s second look at the numbers.

The 0.7 percent decline in first-quarter real GDP was revised from the previously reported gain of 0.2 percent, which was the advance estimate put out at the end of April by the Commerce Department and the Bureau of Economic Analysis (BEA). Real GDP is adjusted for inflation and represents the value of the production of goods and services in the United States.

Real GDP of -0.7 percent in the first (January-March) quarter was lower than the real GDP estimate of 2.2 percent in the fourth (October-December) quarter of 2014. It was also lower than the third quarter 2014 estimate of 5.0 percent.

“The decrease in real GDP in the first quarter primarily reflected negative contributions from exports (imports increased more), nonresidential fixed investment (purchases of nonresidential structures and equipment and software), and state and local government spending that were partly offset by positive contributions from personal consumption expenditures, private inventory investment, and residential fixed investment,” states BEA. “Imports, which are a subtraction in the calculation of GDP, increased.”

Similar to the GDP estimate, Gross Domestic Income or GDI, which measures things like employee compensation, corporate profits and small business income, increased at a lower rate in the fourth quarter than it did in the third.

GDI increased at a rate of 1.4 percent in the first quarter, which was down from the 3.7 percent (revised) in the fourth quarter.

According to BEA, GDI is “the sum of the income earned by labor (compensation of employees), by governments (taxes on production and imports less subsidies), and by entrepreneurs (net operating surplus, which is a profits-like measure for private enterprises, and for government enterprises) - and the consumption of fixed capital.”

The BEA report also released data on corporate profits, which showed a decrease from the previous quarter. ‘Profits from current production decreased $125.5 billion in the first quarter, compared with a decrease of $30.4 billion in the fourth,’ BEA said.

The BEA provides “advance” quarterly estimates of GDP as well as “second” and “third” quarterly revisions of those estimates.

“‘Advance’ current quarterly estimates (based on incomplete monthly data), are released near the end of the first month after the end of the quarter,” explains BEA. “At the end of each of the following two months, revised estimates are released that incorporate revised and newly available monthly and quarterly data; these releases are referred to as “second” and “third” quarterly estimates.”

BEA will release its third GDP estimate for the first quarter of 2015 on June 24.

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