First Quarter GDP Growth Revised Down to 3.0%

Last Updated May 27, 2010 11:14 AM EDT

The Commerce Department announced Thursday that real GDP grew at a revised 3.0 percent pace in the first quarter, down from initial estimates of 3.2 percent and lower than most economists were expecting. In addition, new unemployment claims fell slightly to 460,000 last week. What do these latest reports reveal about the economy? Diane Swonk fills us in.

-Nelson Wang

More GDP Revisions to Come

With the latest GDP numbers, downward revisions to consumer spending and imports were only partially offset by upward revisions to exports. The GDP data still has several revisions to go (seven) before we know what actually happened in the first quarter, and it will likely be revised up when all is said and done, especially in light of recent upward revisions to home sales and construction numbers. In general, gains in the first quarter were more broad-based than they were in the second half of last year, but they remain subdued given the depth of the losses that we endured.

Conflicting Data on Unemployment

The new jobless claims numbers were still high and somewhat inconsistent with other data on the labor market that suggests hiring has picked up modestly. The number of people re-applying for unemployment insurance now that their current insurance has run out explains much of the gap between unemployment claims data and the various hiring reports that we are seeing emerge. There is also some evidence that extensions to unemployment insurance are keeping workers from accepting jobs in at a lower pay grade. Congress plans to extend unemployment insurance through the elections (what a surprise), but will likely curtail extensions to unemployment insurance thereafter. This will get more people looking for work, but could also temporarily push down consumption as the extension of unemployment benefits has provided a floor for consumer spending in recent months.

Debt Problems Remain

The recovery continues, albeit at a subdued pace. We are in significantly better shape than almost any one thought that we would be by this stage in the game a year ago, but still face enormous hurdles as the reality of solving our core debt problems arise. The recent turbulence in Europe is just the first of many aftershocks associated with the crisis.

Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.