Revised GDP Plummets, Stocks Soar

Today provided a valuable lesson in the power of revisions. Before the market opened for trading, the Department of Commerce reported (link opens PDF) its final estimate of first-quarter gross domestic product. For the three months ended March 31, the government said real GDP grew at a seasonally adjusted annual rate of 1.8% over the fourth quarter of last year, versus a previous estimate of 2.4%.

But don't tell investors, as the Dow Jones Industrial Average is up by more than 100 points as of 12:15 p.m. EDT. If it finishes the session this strongly, it will mark the 12th day out of 17 this month that the blue-chip index has made a triple-digit move.

While there's nothing particularly surprising about a 1.8% growth rate, what is notable is how much it has been revised downward over the past two months. The Commerce Department gave an advance estimate of 2.5%. It then revised that down to 2.4% on its second estimate. The 1.8% rate, in turn, is the third and final estimate.

According to the official press release, "The downward revision to the percent change in real GDP primarily reflected downward revisions to personal consumption expenditures, to exports, and to nonresidential fixed investment that were partly offset by a downward revision to imports."

Despite the revision, there was one significant trend revealed by the data: Motor-vehicle output added 0.33 percentage points to the first-quarter change in real GDP after adding 0.18 percentage points to the fourth-quarter change. We saw this in the quarterly numbers for both Ford and General Motors. Ford's North America division saw wholesale volumes shoot up by 17% over the same quarter last year, while General Motors' retail sales increased by 9.3%. As I write, shares of both companies are up by more than 1% on the day.

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The article Revised GDP Plummets, Stocks Soar originally appeared on Fool.com.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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