Ed Dolan's Econ Blog

Latest US GDP Numbers Confirm Consumer-Led Expansion but Government and Exports were Weaker than Previously Thought

The second revision of GDP data released today by the Bureau of Economic Analysis confirmed that the U.S. economy expanded at a moderate 2.4 percent annual rate in the first quarter of 2013. The figure for overall growth was almost unchanged from the 2.5 percent of last month’s advance estimate. However, there were significant changes in several of the components of GDP growth, as the following table shows.

Growth of consumer spending was even stronger than previously reported. In fact, we could say that consumers accounted for all of the reported growth, since pluses and minuses in other sectors just cancelled each other out. Increases in consumer spending were broad-based, with durable goods, nondurable goods, and services all showing solid gains.

As a whole, investment was weaker than previously reported, contributing just 1.16 percentage points to total growth, down from 1.56 points in the advance estimate. However, the news was not all bad. Fixed investment held up well. The decrease came entirely from slower growth of nonfarm inventories than had previously been reported. Looking ahead, the slower pace of inventory increase in Q1 is a moderately good sign. It makes it less likely that factories and stores will have to cut back orders in Q2 to work off unwanted stocks of unsold goods.

Not surprisingly, fiscal drag continued to be a factor slowing GDP growth. As the next chart shows, federal, state, and local governments all made negative contributions to growth in Q1. The biggest decrease came in federal defense spending. The measure of government activity reported in the GDP accounts, government consumption expenditure and gross investment, excludes entitlement spending and interest payments on government debt.

Perhaps the biggest disappointment in the numbers was a sharp reduction in the contribution of exports to GDP growth. Export growth fell to 0.11 percentage points from the 0.4 points reported in the advance estimate. As the next chart shows, exports have been a solid contributor to growth throughout the expansion. The latest numbers, coming on the heels of a decrease in exports in Q4, show the effects of a slowing world economy. Import growth was also revised downward, however, so the contribution of net exports to GDP growth actually increased. (Imports enter into the GDP account with a negative sign, so that the negative 0.32 percentage point contribution of imports to GDP growth means that imports increased, but at a slower pace than reported in the advance estimate.)

Altogether, today’s report contains more good news than bad, especially coming, as it does, right after yesterday’s downward revision of the OECD’s estimates for global growth. At other times, we would not break out the champagne for 2.4 percent growth of GDP while real output remained well below potential and unemployment remained elevated. In the present difficult international environment, however, we can be happy the U.S. economy did as well as it did for the first three months of 2013.

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