EconoMonitor

Ed Dolan's Econ Blog

US GDP Data: Private Sector Grows 2.8% in Q1 2012, Government Continues to Shrink

The private sector of the U.S. economy grew at a 2.8 percent annual rate in the first quarter of 2012, according to yesterday’s advance estimate from the Bureau of Economic Analysis. Overall growth of real GDP was 2.2 percent, pulled down by the continuing shrinkage of the government sector.

Consumption spending contributed 2.04 percentage points to real GDP growth, up from 1.47 points in Q4, 2011. Much of the slowdown in growth came from the investment component, which contributed only .18 percentage points to growth, down from .78 percent in Q4. The good news was that much less of the investment component took the form of inventory buildup. Inventory growth, which contributed 1.81 percentage points to the 3 percent Q4 growth, contributed just .59 percentage points in Q1. As a result, the growth rate of real final sales was actually half a percentage point faster in Q1 2012 than in  Q4 2011.

Exports continued to be a bright spot in the GDP report, as they have been throughout the recovery. Exports contributed .73 percentage points to Q1 growth, up from .37 percentage points in Q4. Growth of imports almost exactly balanced exports, so net exports were essentially flat.

The steady shrinkage of the government sector continued for the sixth consecutive quarter. For the first time in a year, not a single component of government spending increased—federal, state or local; defense or nondefense. This update of a chart I first posted a couple of months ago tells the tale. (The chart shows the broadest measure of government contribution to GDP, combined federal, state and local government consumption expenditures and gross investment.)Where is the “runaway growth of government” that the Tea Party keeps ranting about? Without the labels, one would think we were looking at the transition from Gordon Brown to David Cameron, not from Bush to Obama.

Of course, I should close with the ritual disclaimer: These are the “advance” estimates of GDP, based on a mix of real data from early in the quarter and extrapolations of past trends. They are often subject to substantial revision. Stay tuned for next month’s installment of the “Perils of the Sputtering Recovery.”

Follow this link to view or download the latest GDP details in convenient sideshow form.

7 Responses to “US GDP Data: Private Sector Grows 2.8% in Q1 2012, Government Continues to Shrink”

DarkHelmetMay 1st, 2012 at 1:55 pm

How are you getting government expenditure of 20% of GDP for 2011? The FRED database shows expenditure of about $3.7 trillion while nominal GDP was about $15 trillion. $3.7/$15 = 24.6%.

Ed Dolan EdDolanMay 1st, 2012 at 4:13 pm

I believe you are getting the $3.7 billion number from the FRED series "federal government current expendtitures" (FGEXPND). That series includes transfer payments but excludes government investment. Also, the $3.7 billion is only Federal. It is a completely different series from the one I used for my graph, "government consumption expenditure and gross investment," (GCE) which was just over $3.0 trillion in Q1 2012, or 19.6% of GDP. That series includes state and local as well as Federal government, but it excludes transfer payments. The Bureau of Economic Analysis explains the difference between the two here: http://www.bea.gov/faq/index.cfm?faq_id=552.

Which series is relevant depends on what question you are asking. I was asking the question, "why did GDP grow by just 2.2% in Q1 2012?" The answer I gave is that the private sector was growing faster, at 2.8%, but the total GDP grew at only 2.2% because the contribution of the government sector to GDP has been negative recently. GCE is the right number for that purpose, because it measures the contribution of government to GDP. Transfer payments are not part of GDP; government gross investment is. Also, for GDP purposes, you need to include S&L, not just Federal government.

If you were to ask other questions, for example, questions about the dynamics of the federal deficit and national debt, then you would want to look at federal current expenditures including transfer payments, the series you were looking at.

I think maybe I need to do a post explaining some of the different measures of government and what they mean.

Ed Dolan EdDolanSeptember 22nd, 2012 at 7:35 am

Good question. I'll pay some attention to this question in my next post on GDP. Here are a couple of brief answers:

1. The Bureau of Economic Analysis does not release a separate figure for banking, but their category "Finance and insurance" accounts for 8.3 percent of GDP as of 2011

2. Finance and insurance accounted for 26 percent of all corporate profits in Q1 2012