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The economy shrank
(Getty Images / Spencer Platt)
The economy shrank to start 2015.
The second estimate of first-quarter gross domestic product showed the economy shrank by 0.7% to start the year.
This contraction, however, was a bit less than expected. Ahead of Friday's report, Wall Street was looking for the report to show the economy contracted 0.9% on an annualized basis to start 2015, according to estimates from Bloomberg.
The initial estimate of Q1 GDP, released April 29, showed the economy grew 0.2% to start the year, well below then-consensus expectations for a 1% increase.
Friday's report also showed that personal consumption rose just 1.8% to start the year, less than the 2% that was expected by economists and down from an initial estimate for consumption rising 1.9%. Real final sales fell 1.1% in Q1. The GDP price index was unchanged, showing a 0.1% decline in the first quarter.
In its release, the Bureau of Economic Analysis said: "The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased."
Corporate profits also fell in the first quarter, with profit from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) decreasing by $125.5 billion. Corporate profits fell $30.4 billion in the fourth quarter.
To start the year, Wall Street had been looking for Q1 GDP growth closer to 2%. Wall Street economists, however, aren't that worried about the first quarter and still expect a snapback in the second quarter.
Ahead of Friday's report, Deutsche Bank's Joe LaVorgna said the seasonal adjustments used by the BEA could be understating the strength of the economy, adding that folks may be better served focusing on the gross domestic income number released for the first time Friday.
Gross domestic income rose an estimated 1.4% in the first quarter.
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