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First-quarter GDP is revised downward to a 5% contraction

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A 10.5% decline in gross private investment was the primary driver of the downward revision to first-quarter gross domestic product to a 5% contraction, from a drop of 4.8%, the Commerce Department reported Thursday.

We are keeping our forecast of a 38.5% decline in second-quarter GDP intact.

Despite modest upward revisions to household consumption and robust residential investment, we are keeping our forecast of a 38.5% decline in second-quarter GDP intact.

While the free fall of the American economy caused by the pandemic has come to an end, the plunge in employment and output will leave lasting damage to the domestic economy, and the data yet to arrive will inform us of the breadth and depth of that damage.

Downward revisions in gross domestic purchases now imply a 6.1% decline, which does imply that the third estimate has some room for further downward revisions to the top-line number. Final sales to private domestic purchasers declined by 5.9%, while real final sales declined by 3.7%. GDP excluding motor-vehicle output dropped by 4.7%.

Personal consumption declined by 6.8% despite an increase of 0.2% in outlays on goods, which was driven by a 7.7% advance in non-durables spending, most of which occurred during the first three weeks of March. Outlays on services declined by 9.7% and durables by 13.2%.

Fixed investment declined by 2.4%, which was underscored by a 7.9% decline in non-residential outlays, a 3.9% decline in spending on structures, a 16.7% collapse in equipment outlays and a 1% increase in intellectual property spending.

Outlays on residential investment increased by 18.5%, which was the only real bright spot in the report.

Exports declined by 8.7% and imports by 15.5%. Government consumption advanced by 0.8% and the change in inventories saw a large downward revision, from a $16.3 billion decline to a $67.2 billion decrease.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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