March 29, 2017

Economic Growth Decelerates in 1st Quarter

During the first quarter of 2011, the US economy recorded positive growth, yet the rate of growth decelerated and was relatively sluggish. Total output of the US economy grew at an annual rate of 1.8% in the first quarter, according to the advanced estimate of the gross domestic product [.pdf] released today from the Bureau of Economic Analysis. This growth rate is not only less than the previous two quarters, when overall output grew at a 3.1% rate in the fourth quarter of 2010 and 2.6% in the third quarter, but this growth rate is also well below the first quarter of 2010, when GDP growth totaled 3.7%.

Since 1947, when GDP record keeping began, the average growth rate for the US economy is 3.3% [.xls]. With a noticeable difference between the historical trend of the GDP growth rate and the results for the first quarter, current economic output of the US economy clearly lags behind the past.

The deceleration in the GDP growth rate in the first quarter primarily resulted from less government expenditures and investments, a growing trade deficit, fewer personal consumption expenditures, and a decline in private investments, especially construction.

More specifically, the most significant contribution to the slowdown of GDP growth rate in the first quarter was a 5.2% decline in government expenditures and investments. In fact, this is the greatest quarterly decline in government and investment expenditures since the fourth quarter of 1995.

As mentioned in the past, federal government expenditures accounted for 25% of the GDP in 2009, while state and local government expenditures accounted for 9%. Since government expenditures and investments make up over a third of economic activity, the 5.2% decrease in the first quarter certainly influenced the deceleration in the GDP growth rate.

State and local governments expenditures and investments shrunk 3.3% in the first quarter, whereas federal expenditures and investments declined 7.9%. Within federal expenditures and investments, defense declined 11.7%, whereas nondefense grew 0.1%, which shows how the decline in defense influenced the deceleration within federal government.

In addition to a decline in government expenditures and investments during the first quarter, slowdowns in international trade also occurred. Following an 8.6% growth rate for exports in the fourth quarter of 2010, the growth rate for exports in the first quarter was 4.4%. The rate of imports also increased 4.4% during the first quarter, which is likely a result of the recent surge in oil prices. On February 15th, the price for a barrel of oil was trading at $87.50, but the current price is over $112, or an increase of 22%. These fluctuations within international trade would each subtract from GDP growth on their own, but the combination of these shifts intensifies this smothering of GDP growth.

Fewer personal consumption expenditures also influenced the relatively sluggish growth rate of the first quarter. After personal consumption expenditures grew 4.0% in the fourth quarter of 2010, which helped to nearly reach an overall GDP growth rate in the fourth quarter on par with the historical average, personal consumption expenditures in the first quarter grew 2.7%. While this growth is positive, consumption expenditures account for a considerable portion of the US economy, so a deceleration within this category is consequential for overall growth.

Similar to fewer personal consumption expenditures, private investments also slowed in the first quarter. Nonresidential construction grew 7.7% in the fourth quarter of 2010, but only grew 1.8% in the first quarter. Residential construction also brought a downturn to the GDP growth rate, with a decline of 4.1%. Despite these construction decelerations within private investments, equipment and software investments increased 11.6%, which was the greatest growth throughout the US economy during the first quarter.

Altogether, the US economy expanded in the first quarter, but not significantly, due to a decline in government expenditures and investments, as well as negative fluctuations within exports, imports, personal consumption expenditures, and construction. With each of these vital sectors of the US economy performing below prosperous standards, the US economy continues to recover at a quite modest pace.

Left and Right News occasionally publishes articles on other websites – this article was first published at Technorati here.

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