Let the Rain Fall Down

Mary Katharine Ham
Posted: May 25, 2006 8:46 AM

This Dow Jones story came across the wire today (emphasis mine). Read the story and then read the punchline, err, I mean headline, below the story:

WASHINGTON (Dow Jones)--The U.S. economy opened the year with more vitality than first thought, driven by stronger inventory building and overseas sales.

Gross domestic product increased at a 5.3% annual rate January through March, the Commerce Department said Thursday in its first revision to first-quarter 2006 GDP. The government initially estimated growth at 4.8%.

Price inflation estimates were left largely untouched.

The report showed corporate profits after taxes climbed 8.8% to $1.155 trillion January through March from the last three months of 2005. Profits increased 13.8% in the fourth quarter. Year over year, profits climbed 24.8% since the first quarter of 2005.

Raised projections on inventory building and exports were behind the upward revision to GDP, which is a measure of all goods and services produced in the economy.

The 5.3% seasonally adjusted gain in GDP was much bigger than the fourth quarter's 1.7% push forward, and marked the strongest quarterly showing since third-quarter 2003, when GDP raced ahead at a pace of 7.2%.

Still, Wall Street expected faster growth of first-quarter GDP; the median estimate of 23 economists surveyed by Dow Jones Newswires and CNBC was a 5.8% increase.

The revisions released Thursday showed business inventory building was stronger than first assumed. Stockpiles rose by $32.3 billion; originally, Commerce estimated a $21.9 billion increase. Companies had elevated stocks $37.9 billion in the fourth quarter.

The accumulation of goods subtracted only 0.14 percentage points from first-quarter GDP. Originally, Commerce said inventories cut 0.52 percentage points off GDP.

Businesses increased spending a little less than previously thought. Outlays rose 13.1% January through March, lower than the originally estimated 14.3% advance. Business spending rose 4.5% in the fourth quarter. First-quarter investment in structures climbed 11.3% and equipment and software increased 13.8%.

First-quarter spending by consumers rose 5.2%, down from a previously reported 5.5% but way above the fourth quarter's 0.9% advance.

Consumer spending accounts for the lion's share of economic activity - about two-thirds. It contributed 3.63 percentage points to GDP in the first quarter; the original estimate was a contribution of 3.81 percentage points.

Purchases of durable goods surged 20.5% in January through March, a bit down from a previously reported 20.6% but far stronger than October-through-December's 16.6% tumble.

Durable goods are expensive items designed to last at least three years, such as cars.

First-quarter non-durables spending rose by 5.7%. Services spending went 2.2% higher.

Trade exerted less of a drag on GDP, according to the revised data. U.S. exports rose by 14.7%. Imports increased 12.8%. Originally, exports were seen up 12.1% and imports 13.0% higher. Fourth-quarter exports increased by 5.1% and imports surged 12.1%. Trade lopped 0.55 percentage points off GDP in the first quarter; initially, Commerce said trade reduced GDP by 0.84 percentage points.

Residential fixed investment, which includes spending on housing, climbed by 3.1% in the first quarter, higher than the originally estimated 2.6% rate of growth. Fourth-quarter spending went up 2.8%.

Real final sales of domestic product, which is GDP less the change in private inventories, climbed 5.5%. The original estimate was a 5.4% increase. Fourth-quarter sales fell 0.2%.

Federal government spending increased by 10.5%, revised down from an initially estimated 10.8% increase. Fourth-quarter spending fell 2.6%. State and local government outlays increased 0.8%.

The government's price index for personal consumption rose 2.0%, unchanged from the previous estimate for the quarter and below the fourth quarter's 2.9% climb. The PCE price gauge excluding food and energy increased 2.0%, the same as the previous estimate for the quarter and below the fourth quarter's 2.4% climb.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose 2.8%, up from the previous estimate for the quarter of 2.7% but below the fourth quarter's 3.7% climb. The chain-weighted GDP price index rose 3.3%, the same as the previous estimate for the quarter but below the fourth quarter's 3.5% climb.

Dude had to whip out a thesaurus to figure out more ways to say "increased." He was all, "Mr. Editor, can I use smokin' in a business story?"

But the headline on this story?

US 1Q GDP Revised At Rate Below Expectations

It comes from one sentence in the 7th graf:

Still, Wall Street expected faster growth of first-quarter GDP; the median estimate of 23 economists surveyed by Dow Jones Newswires and CNBC was a 5.8% increase.

The forecast is no clouds with a 100-percent chance of silver lining, and they're convinced it's overcast.

Other outfits used more appropriate headlines.