The U.S. economy slowed considerably in the first half of 2011, with the Bureau of Economic Analysis (BEA) revising downward real GDP growth in the first quarter to 0.4 percent (from 1.9 percent, as stated earlier) and reporting advanced estimates for the second quarter of 1.3 percent. (All percentages are in annualized terms.) BEA did some major revisions to data from 2007 onward using more complete information as part of its annual review.
Consumption, which accounts for approximately 70 percent of real GDP, rose just 0.1 percent in the first quarter, with durable goods sales down 4.4 percent.
For the manufacturing sector, much of this is not new news. The decline in durable goods consumption of 4.4 percent comes after five consecutive quarters of strong growth. Given the supply chain issues that challenged the sector during this time frame, this is not a surprise. The largest contributor to this decline was the motor vehicle sector, which was most impacted by the Japanese disaster. Nondurable goods sales rose 0.1 percent, while services were up 0.8 percent.
Government served as another drag on output, with government’s contribution to real GDP falling for the past three quarters. In the second quarter, government consumption fell 1.1 percent, led by declines in nondefense federal spending (down 7.3 percent) and state and local government spending (down 3.4 percent).
There were two bright spots in the news. First, real exports outpaced real imports, 6.0 percent versus 1.3 percent, respectively, with healthy increases in goods sold oversees (6.8 percent). While these numbers are lower than the growth rates of the first quarter, they do highlight the important role that international trade plays in our overall economic growth. In fact, real exports accounted for 0.81 percent of the growth in real GDP in the second quarter.
The second bright spot is business investment, with real gross private domestic investment growing 7.1 percent in the second quarter. This was up from 3.8 percent growth in the first quarter, contributing 0.87 percentage points to real GDP. Nonresidential fixed investment was up 6.3 percent in the second quarter, with residential construction rising 5.7 percent and inventory growth increasing 3.8 percent. This is a reversal from the steep declines in nonresidential structure construction in the first quarter.
Moving forward into the third quarter, we have started to see nascent signs of a rebound, particularly in the durable goods sectors. I say nascent, but there are also signs that this rebound is slow in getting started. While there remain cautiously optimistic perceptions of economic growth for the second half of this year, there are significant headwinds that can put a damper on these plans.
The ability to get this economy growing again in the third and fourth quarters will hinge on removing uncertainty in the marketplace, improved business and consumer confidence, continued growth in our sales overseas, and a stronger domestic economic footing.
Chad Moutray is chief economist, National Association of Manufacturers.