2012 GDP off to a slower start
U.S. Gross Domestic Product (GDP), the measure of the nation's output of goods and services, grew by 2.2 percent in the first quarter of 2012, according to the latest figures from the U. S. Bureau of Economic Analysis. To the surprise of practically nobody, growth in the first quarter was slower than the 3.0 percent rise recorded in the fourth quarter of 2011. Consumer spending provided the most punch to the gain in real output, growing by 2.9 percent, the fastest pace in more than a year. But a slowdown in business investment spending and continuing outright declines in government spending combined to weaken growth in the quarter.
U.S. Gross Domestic Product (GDP), the measure of the nation's output of goods and services, grew by 2.2 percent in the first quarter of 2012, according to the latest report from the U. S. Bureau of Economic Analysis. Quarterly figures for GDP are expressed as inflation-adjusted changes at an annualized rate. To the surprise of practically nobody, growth in the first quarter was slower than the 3.0 percent rise recorded in the fourth quarter of 2011 (see table).
A sizeable portion of the GDP increase in the fourth quarter was due to inventory accumulation, and analysts had not expected a repeat performance in the first quarter. Even so, changes in private inventories accounted for more than one third of the percentage increase in GDP this time, raising concerns that the unintended accumulation of unsold goods could lead to an overall slowdown in orders and production.
Consumer spending provided the most punch to the gain in real output, growing by 2.9 percent, the fastest pace in more than a year. But a slowdown in business investment spending and continuing outright declines in government spending contributed to weaker growth compared to the prior quarter. Still, the 2.2 percent GDP increase exceeded the average of 1.7 percent for all of 2011, and marked the 11th consecutive quarter of growth since the recession ended in the summer of 2009.
Table 1: Annualized Real GDP Growth Rates by Quarter (%)
| Source; U.S. Bureau of Labor Statistics, non-farm jobs, seasonally adjusted, August 3, 2012, subject to later revision. | |||||||||||
| 2010-Q1 | 2010-Q2 | 2010-Q3 | 2010-Q4 | 2011-Q1 | 2011-Q2 | 2011-Q3 | 2011-Q4 | 2012-Q1 | |||
| 3.9 | 3.8 | 2.5 | 2.3 | 0.4 | 1.3 | 1.8 | 3.0 | 2.2 | |||
Economic Drivers 2012-Q1 vs 2011-Q4
The 2.9 percent increase in the first quarter was the sharpest uptick in spending by consumers in more than a year. Since consumer expenditures make up about 70 percent of GDP, the resulting impact (2.9 percent multiplied by .70) contributed a boost of just over 2.0 percent to GDP for the quarter, a significant jump compared to Q4 (see table).
Meanwhile, nonresidential fixed investment (structures, equipment and software) turned negative for the first time since 2009. A rise in spending on residential structures pushed overall fixed investment into the positive range, resulting in a very modest contribution to GDP growth. Exports and imports offset each other, and since imports reduce GDP, the effect was a near-zero impact on GDP.
Weak government spending continues to exert a drag on growth, with decreased federal spending pulling down GDP by nearly one half percentage point in Q1.
State Job Growth in March 2012 vs. March 2011
| Rank | State | Percent change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Source: W. P. Carey School of Business, Arizona State University, derived from U. S. Bureau of Labor Statistics | |||||||||||
| GDP Components | 2011-Q4 | 2012-Q1 | |||||||||
| Gross Domestic Product | 3.0% | 2.2 % | |||||||||
| Personal Consumption Expenditures | 1.47 | 2.04 | |||||||||
| Fixed Investment Expenditures | 0.78 | 0.18 | |||||||||
| Change in Private Inventories | 1.81 | 0.59 | |||||||||
| Net Exports | -0.26 | -0.01 | |||||||||
| Federal Government | -0.58 | -0.46 | |||||||||
| State and Local Government | -0.26 | -0.14 | |||||||||
Outlook
The 2012-Q1 GDP figures will be revised in the months ahead, with the next look slated for May 31. The first report on Q2 GDP growth is due July 27.
It seems unlikely that future GDP reports for Q1 and Q2 will vary by much from the most recent growth figures. Job growth in April was a disappointment (at 115,000), suggesting Q2 GDP growth could be quite weak.
Consumer spending will probably slip back below 2.0 percent growth, since incomes and wages are barely increasing. A reasonable expectation is a contribution of about 1.5 percent to the overall GDP increase for Q2 and probably for the whole year. Gross Investment seems on track to add less than 1.0 percent, depending on the strength of the residential building component.
Estimating net exports as basically a wash with zero influence, decreases in federal, state and local government spending have the potential to reduce growth by about one third of a percentage point. The result is growth of anywhere from 2.0 percent up to 2.5 percent going forward for the rest of the year.
Latest news
- Lab lessons: Roadcase.com VP shares how ASU's SMB Lab fueled growth and efficiency
The Arizona-based audio/visual equipment case manufacturer gets expert guidance on improving…
- Best installment loans
Loans should be prioritized by their ability to improve human capital, says an ASU finance…
- Why does online shopping make me feel like absolute crap?
Online shopping can cause anxiety and frustration, says a W. P. Carey marketing expert.