The Commerce Department’s advance report on GDP growth showed that the economy rose at an annual rate of 3.2 percent in the first quarter of the year, the third consecutive quarterly advance.
For manufacturers, today’s report was both sweet and sour. On the sweet side, a global economic recovery boosted export growth again in the first quarter, with goods exports rising at an annual rate of 6.7 percent. Over the past year, goods exports increased by 13.7 percent, an increase that was not only greater than any other major GDP component but also the fastest 4-quarter advance in more than a dozen years. Exports have been a key driver in the current recovery, accounting for 43 percent of GDP growth over the past three quarters.
On the sour side, though business investment rose by 4.1 percent, this upturn was mainly confined to an upturn in information processing equipment and software. Elsewhere, business investment in industrial and transportation equipment were stagnant in the first quarter, while structures continued to fall at a double digit rate. It is clear from today’s report that a broad upturn in capital investment has yet to emerge, signaling that manufacturers remain uncertain about the underlying strength of the emerging recovery.
While the pace of the recovery slowed in the first quarter from the 5.6 percent growth in the fourth quarter, momentum would have likely slipped even further had it not been the fact that an early Easter likely brought forward into the first quarter consumer purchases in areas of clothing and footwear and recreational goods that typically would have taken place in the second quarter. Together, these purchases accounted for 28 percent of the increase in consumer purchases in the first quarter. At the same time, these purchases were also a major factor in the 9 percent rise in goods imports last quarter.
In summary, while today’s report shows that the economic recovery continued through the first quarter of 2010, the deceleration from 5.6 percent GDP growth in the fourth quarter to 3.2 percent growth in the first quarter signals momentum is not moving in a positive direction and that the first year of recovery will not be as strong as the initial upturns following the major recessions in mid-1970s and early 1980s.