The third revision only added 0.1% to GDP, but even a slightly healthier private sector is relatively good news

600 gdp REUTERS Sean Gardner.jpg

First quarter economic activity was a little stronger than we thought. The third revision of GDP for the first three months of 2011 bumped up growth to 1.9%, compared to a previously estimated 1.8%. Although 0.1% isn't much to get excited about, as the recovery struggles it's certainly better news than if we had learned that the quarter was worse than projected. Although few components of GDP changed significantly, net exports were responsible for the better result.

First, here's the new chart, showing the slight change in Q1 GDP growth, based on the data from the Bureau of Economic Analysis:

gdp 2011-q1 r3.png

You can see that this little revision isn't enough to make the first quarter compare more favorably to the couple prior. The U.S. economy experienced relatively weak growth.

Compared to the prior revision, net exports were stronger, however. They were previously estimated as subtracting 0.06% from GDP. Instead, government economists now say that exports exceeded imports, adding 0.14% to growth.

So why does that net 0.20% increase in GDP growth only equate to 0.1% in the headline number? Government spending declined by even more than we thought. It ended up shaving 1.20% off GDP growth, instead of the 1.07% projected in May. This was due almost entirely to state and local government spending cuts during the quarter.

The other components of GDP were pretty accurately estimated in the second revision. Personal consumption was virtually unchanged, though goods purchased did slight better than previously estimated and services did a little worse. But these components canceled each other out. Overall, consumer spending was responsible for 1.52% of GDP growth, making it the biggest contributor in the first quarter.

Business investment was also virtually unchanged. In this case, however, fixed investment was a little weaker than the last estimate while inventory growth was a little stronger. Like with consumption, however, these subcomponents canceled one another out to provide little change to total investment from the prior revision. Gross business investment added 1.46% to growth.

Although this revision to GDP was small, it happened for positive reasons. It's nice to see exports better than we thought. It also isn't particularly troubling to see government spending having been a little worse than we thought -- the private sector was a little stronger, which is more important in the context of a recovery.

With all that said, 1.9% growth isn't great. But without the drag from government spending, growth would have been 3.1%. That would have been a much better result. This shows the drag that government budget cuts are having on the broader economy. Of course, this problem has been seen in recent unemployment reports as well, as government jobs are consistently shed.

Image Credit: REUTERS/Sean Gardner

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