1st Quarter GDP a Mix of Good News and Bad News


The Bureau of Economic Analysis (BEA) released its first estimate of GDP (gross domestic product) for the first quarter this morning.  Real GDP grew at an annualized rate of 3.2%, down from the hot pace of 5.6% in the 4th quarter of last year.  (The link above takes you to the BEA report.)  But that pace was largely driven by inventory-building and not by underlying growth in the economy.  The news this quarter is better.  The bulk of the 3.2% growth rate was driven by consumer demand. 

As has been the case for four quarters now, GDP was boosted by spending under the economic recovery act.  However, that money is now about half spent and the rate of spending has slowed dramatically, falling from a high of $113.2 billion in the 3rd quarter of ’09 to $55 billion in the 1st quarter of this year.  Take away that spending and the rate of growth in the underlying economy was 7.1% (annualized) in the 1st quarter, down from 9.4% in the 4th quarter of last year.

Growth in real GDP per capita was 2.4% annualized, dragged down 0.8% from the growth rate of the overall economy by population growth.  That’s well below the growth rate of 4.6% in the first quarter. 

Here’s a chart of real per capita GDP since 2000:

Per Capita GDP

And here’s a chart of the quarterly population growth which has been a drag on real per capita GDP:

Quarterly U.S. Population Growth Rate

The BEA report is a mix of good news and bad news.

Good News:

  • Domestic motor vehicle output is accelerating, as are computer sales.
  • Real personal consumption expenditures increased 3.6 percent in the first quarter, compared with an increase of 1.6 percent in the fourth.
  • Durable goods increased 11.3 percent, compared with an increase of 0.4 percent in the 4th quarter.
  • Nondurable goods increased 3.9 percent, compared with an increase of 4.0 percent.
  • Services increased 2.4 percent, compared with an increase of 1.0 percent.
  • Real final sales of domestic product — GDP less change in private inventories — increased 1.6 percent in the first quarter, compared with an increase of 1.7 percent in the fourth.  The growth is good; the deceleration is not.
  • Current-dollar personal income increased $115.1 billion (3.9 percent) in the first quarter, compared with an increase of $92.5 billion (3.1 percent) in the fourth.

Bad News:

  • The rate of growth in GDP, especially real per capita GDP is decelerating.
  • An increase in imports more than offset an increase in exports, making international trade an overall drag on GDP growth.
  • Real residential fixed investment decreased 10.9 percent, in contrast to an increase of 3.8 percent.
  • Real nonresidential fixed investment increased 4.1 percent in the first quarter, compared with an increase of 5.3 percent in the fourth.  But the really bad news is  nonresidential structures continue to decline dramatically, decreasing 14.0 percent, compared with a decrease of 18.0 percent in the 4th quarter. 
  • The change in real private inventories added 1.57 percentage points to the first-quarter change in real GDP after adding 3.79 percentage points to the fourth-quarter change.  Inventory growth isn’t sustainable.
  • Real disposable personal income was unchanged in the first quarter, compared with an increase of 1.0 percent.
  • The personal saving rate — saving as a percentage of disposable personal income — was 3.1 percent in the first quarter, compared with 3.9 percent in the fourth.  (In other words, the growth in GDP was partly financed by a draw-down in savings.)

Looking ahead, the first quarter GDP was still heavily influenced by fiscal stimulus in the form of stimulus spending, home-buyer tax credits (expiring today) and massive Federal Reserve purchases of mortgages, which ended at the end of March.  The economy will now be left standing naked, with far less government support.  It’ll be interesting to see what happens in the 2nd quarter.

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