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First quarter GDP revised higher to 0.8%

Based on more complete data

The Gross Domestic Product, that is, the value of everything a nation produces, increased at an annual rate of 0.8% in the first quarter of 2016, which is higher than the original advance estimate, according to the "second" estimate released by the Bureau of Economic Analysis.

This is compared to GDP increasing 1.4% in the fourth quarter.

The bureau noted that this report is based on more complete data than what was available for the "advance" estimate issued last month.

According to the "advance" estimate released by the bureau in April, GDP increased at an annual rate of 0.5% in the first quarter of 2016.

When the advance findings from the bureau came out, Capital Economics estimated that GDP growth would underwhelm and gain around 2% this year.

The bureau attributed the change in GDP from the advance estimate to the decrease in private inventory investment coming in smaller than previously estimated.

Additionally, the report credited the increase in real GDP in the first quarter primarily to positive contributions from personal consumption expenditures, residential fixed investment and state and local government spending.

However, this was partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and federal government spending. 

“While first-quarter GDP remained low despite the upward revision, there are a number of reasons to anticipate a rebound in the second quarter,” said National Association of Federal Credit Unions Chief Economist Curt Long

“Incoming data has been noticeably stronger, the drags from low oil prices and a strong dollar were less than previously estimated, and there is still a possibility that the government’s seasonal adjustment continues to underestimate GDP in the first quarter while boosting it in subsequent quarters,” said Long. “Overall, this is another in a string of positive data releases which will provide plenty of ammunition for the Fed to raise rates no later than July.”

As predicted, the Federal Open Market Committee elected in its last meeting to hold steady and not increase federal funds rate.

The current rate is set at 0.25% and 0.5%, and will remain so, until at least the FOMC’s next meeting in June.

However, once the FOMC released its meeting minutes, skeptical investors were sent a sharp warning that an interest-rate increase is still in play for June’s policy meeting if the economy keeps improving.

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