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.
- Falling UK real wages cannot be covered up with housing market subsidies forever
- The UK economy gets quite a boost from the official statisticians
- How long can France afford its economy to continue stagnating for?
- Three stock picks from F&C European Small Cap manager Sam Cosh
- Government to abolish 55% death tax on pensions
- Just one year to go before Britons can get up to £1,300 a year in State Pension top-ups
- Osborne's move to abolish 55% tax on inherited pensions: Expert reactions and commentary
- Mindful Money's weekly shares watch: Sainsbury’s, Wolseley & Compass
- Mortgage price war continues
- Sainsbury's ad blunder causes Twitter storm