US consumer spending expanded in the first quarter at the softest pace of the pandemic recovery, marking a surprise sharp downward revision that suggests an economy on weaker footing than previously thought.
Outlays on goods and services rose an annualized 1.8%, compared with a 3.1% pace in the previous estimate, according to Commerce Department data out Wednesday. Overall gross domestic product was revised down slightly to a 1.6% annualized decline in the first quarter.
Spending on both services and merchandise was revised lower. Within services, outlays for financial services, insurance and health care were marked down. Spending on goods was revised to an annualized 0.3% decline from little changed, reflecting less robust spending on durables. Outlays for non-durable goods shrank at a 3.7% rate.
“This is a case where GDP revisions alters the view of the first quarter,” said Alex Pelle, US economist at Mizuho Financial Group Inc. “Instead of accelerating in the first quarter versus the prior two quarters, consumption actually moderated.”
By the time the government releases its third estimate of GDP and the underlying components, the numbers don’t typically change much. The large downward revision to consumer spending — paired with a sizable upward revision to inventories — is quite unusual.
Private inventory investment was revised sharply higher, rising nearly $189 billion from the prior quarter compared with a previously estimated change of about $150 billion. This was led by retail trade — notably general merchandise stores — and other industries like information.
The report also showed firmer investment in equipment and a much smaller decline in nonresidential structures.
Personal spending data for May will be released Thursday.
–By Reade Pickert (Bloomberg)
