US economy grows slower than previous estimates
- 1 June 2012
Yesterday, the government said gross domestic product (GDP) in the first quarter of 2012 grew at an annualized 1.9% pace, less than the 2.2% growth first thought. This means the economy had less momentum going into the second quarter and comes as fears are growing that a global economic slowdown could eventually weigh on domestic growth.
Nevertheless, according to the WSJ, the GDP report did contain glimmers of hope: "First-quarter growth was trimmed, in part, by less inventory building by companies than initially thought. That could mean gains for the economy in the second quarter as companies replenish stockpiles."
"The report also suggested firms continue to spend and hire when they see opportunities. Corporate profits increased $11.4 billion before taxes in the first quarter after gains of $16.8 billion in the fourth quarter and $32.5 billion in the third quarter."
Another warm-weather slump
In her analysis of the report, Kathleen Madigan says the U.S. recovery can't seem to shake off the hot-weather jinx.
"The U.S. is facing another warm-weather slump. In 2010, the summer slowdown came partly from less inventory building. In 2011, supply disruptions after the Japan earthquake and tsunami disaster plus the Arab Spring-related spike in gasoline prices hurt spring growth."
She says the culprits for 2012 are the protracted euro-zone debt crisis, uncertainty about Washington policy, a stock-market swoon and the past jump in gas prices.
GDP vs GDI: A tale of two different stories
So the US economy is doing even worse than we first thought. Or is it? According to Brad Plummer, one of the more confusing aspects of the Bureau of Economic Analysis's economic releases is that it uses two different numbers to measure economic growth. There's gross domestic product (GDP), which measures expenditures. But there's also gross domestic income (GDI), which measures income.
"In theory, these two numbers should line up – if one person's spending money in the economy, that should show up as another person's income. But because of measurement errors, they often differ wildly. And they tell very different stories. In the first quarter of 2012, for instance, GDI increased by 2.7 percent. That suggests a somewhat healthier recovery."
And signs of a slowdown in U.S. hiring and economic growth magnify the political impact of the monthly report on employment from the Labor Department today, writes Mike Dorning.
Mr. Dorning says the electorate's perception of the economy's trajectory will be paramount in shaping voter decisions in the November election between President Barack Obama and Republican candidate Mitt Romney.
"The state of the economy is not all that clear," said Christopher Wlezien, a political science professor at Temple University in Philadelphia and co-author of the forthcoming book "The Timeline of Presidential Elections."
"What happens over the next four or five months is going to matter a lot to the president."
More on Mindful Money
To receive our free daily newsletter sign up here.
Mindful money Mortgage Tool Box
Looking To Re-mortgage
How Much Could You Borrow
How Much Is Your Home Worth
Find a Mortgage Advisor
- The pension chance of a lifetime? Taking a small pension pot as cash and topping up the state pension could double what an annuity would give
- Government sells-off a further £500m of Lloyds Banking Group shares
- Just weeks to go until pension reforms, but still no phone number for guidance service
- Experts share their views on the Woodford Patient Capital Trust
- Work five more years past retirement age and boost your income by a third
- Almost 40% of Britons intend to use their ISA to fund retirement
- Equities, commercial property, infrastructure, Europe & strategic bonds: Five income ideas for your ISA
- What Janet Yellen’s testimony and US interest rates mean for global investors
- Too many DIY investors are running high-risk portfolios
- Post Office ISA allows mix of fixed and variable rates. Shawbrook launches cash ISAs.