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By Jason Stipp and Robert Johnson, CFA | 04-24-2013 12:00 PM

Friday's GDP May Look Too Good to Be True

Don't get too excited over any reading that's much above the economy's true 2% underlying growth rate, says Morningstar's Bob Johnson.

Jason Stipp: I’m Jason Stipp for Morningstar. We get the government’s first read on first-quarter gross domestic product Friday, but there's a lot going on under the surface of this number. Here to help clarify and provide some context for Friday's number is Morningstar's Bob Johnson, our director of economic analysis. Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: We will get the first read on first quarter GDP on Friday. This is the first read. This number, whatever it turns out to be, is subject to change. Before we get into the details, why is this number subject to change? They don't have all the data yet, right?

Johnson: Right. They want to give everybody a general knowledge of where the economy is, and get it out as fast as they can. So that's why we always have a first read. But we don't have the actual numbers for imports/exports. That number is hard to collect because it comes through all the ports and it’s a very complicated set of reports. So they’re actually estimating what the March imports and exports are. And inventory is another one where they’re kind of just guessing for now, and then as we get further along in the process that gets revised out a little bit.

Stipp: Some of these factors can have a pretty big effect on the second or the third read. For example, in the fourth quarter it was originally negative 0.1%, but that got revised to 0.4% for the fourth quarter. So now for the first quarter a lot of economists are expecting a pretty big increase. What is the range of expectations, and what are you thinking we’ll see for the first-quarter GDP?

Johnson: I think almost all the estimates I've seen are over 3%. There is kind of a range of 3% to 3.5%, maybe 3.1% what I might characterize as an average. I actually think those numbers could be just a little high. I mean, I think the number is probably 2.5% to 3.0%, somewhere in that range.

Stipp: What’s driving that? That’s a pretty big improvement even at the lower end of that range from the 0.4% that we saw in the fourth quarter. What’s behind the uptick here?

Johnson: I think the biggest number in there is probably going to be consumption, and the consumption number is going to be probably a 2% contributor to that overall 3% growth rate. So almost all of it is coming out of consumption, and then the big swing is also due to some of the other things not being as bad as they were in the fourth quarter.

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