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business investment

Soft Real GDP Growth in the First Quarter

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The Bureau of Economic Analysis reported that the U.S. economy grew 0.7 percent at the annual rate in the first quarter, starting 2017 off on a soft start as expected. This follows real GDP growth of 2.1 percent in the fourth quarter. Weaker consumer and inventory spending in the first quarter could explain the lower figures, with government spending also serving as a drag on the headline number.

To be fair, this is just the first estimate, so there is a chance that future revisions might show better growth, particularly if incoming data for March are better than expected. In addition, we traditionally have a sluggish first quarter followed by a strong rebound in the second quarter. My current forecast is for 2.8 percent growth in real GDP in the second quarter, with the economy expanding 2.1 percent for 2017 as a whole. Of course, these estimates might drift higher with passage of more pro-growth policies, especially in terms of the outlook later this year and into 2018.

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Fourth Quarter Real GDP Growth at 1.9 Percent

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The Bureau of Economic Analysis said that the U.S. economy grew 1.9 percent at the annual rate in the fourth quarter in preliminary data. This was slightly less than the consensus estimate for 2.2 percent, and it was slower than the 3.5 percent increase seen in the third quarter. Real GDP growth was buoyed by modest growth in consumer and government spending and by a continuing rebound in business investment, but net exports served as a drag on the headline number. Overall, the U.S. economy expanded 1.6 percent in 2016, down from its 2.2 percent post-recessionary average, and the year was mostly marked by an all-too-cautious approach to spending on the part of consumers and business leaders. Yet, by year’s end, that began to change – with many Americans and firms more willing to open their pocketbooks. Moving forward, I would expect 2.6 percent growth in real GDP in 2017 – a figure that can be assisted by pro-growth policies emanating from Washington including comprehensive tax reform, regulatory balance and investment in infrastructure.

Looking more closely at the underlying data, consumer spending on goods increased 5.2 percent at the annual rate in the fourth quarter, building on the 3.5 percent gain seen in the third quarter. This figure was boosted by strength in durable goods purchases including motor vehicles. Personal consumption expenditures added 1.70 percentage points to real GDP in the fourth quarter, with 0.58 percent coming from services and 1.11 percent stemming from goods spending.

Healthier business spending also served to boost real GDP growth, with gross private domestic investment adding 1.67 percentage points to the top line. It was the largest contribution to the real GDP since the second quarter of 2014. Residential and nonresidential fixed investment rose 10.2 percent and 2.4 percent in the fourth quarter, respectively, with both notching notable improvements from the third quarter. Indeed, residential spending rebounded from a sharp decline in the prior report, and equipment spending rose for the first time in five quarters. Inventories were also up significantly for the second straight quarter, accounting for a full percentage point of the 1.67 percent contribution in this category. Yet, it was not all good news, as nonresidential fixed investment in structures fell 5.0 percent in the fourth quarter.

Finally, manufacturers have been challenged over much of the past two years by a number of global headwinds. This has included a rapid appreciation in the U.S. dollar, as well as economic softness to many key markets. Along those lines, the contribution to GDP from net exports slipped back into negative territory in the fourth quarter for the first time in 2016, subtracting 1.70 percentage points to the headline number. (Put another way, if it had not been for net exports, real GDP growth in the fourth quarter would have been 3.6 percent, not 1.9 percent.) Goods imports jumped 10.9 percent in this release, with goods exports off by 6.9 percent.

Real GDP Growth Disappointed in the Second Quarter

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The latest gross domestic product (GDP) numbers confirm that the U.S. economy remains mired in slower-than-desired growth despite recent signs of progress in some data points. Real GDP grew just 1.2 percent in the second quarter, well below the consensus estimate of 2.6 percent, with first quarter growth revised down to 0.8 percent. This release reflects a rebound in consumer spending, but there were significant drags on activity from fixed investment and inventories. Indeed, manufacturers and other business leaders continue to be quite cautious, and as a result, they are holding back on capital spending and hiring, waiting for better signs of traction in the economy.

The U.S. economy has averaged 2.2 percent growth annually since the end of the Great Recession, and with this release, real GDP is likely to expand by 1.8 percent in 2016. That would, however, suggest a better second half of the year, as real GDP grew just 1.0 percent at the annual rate in the first half. With that in mind, we need policymakers – especially in this all-important election year – to focus on pro-growth measures that will spur stronger activity. Read More

Real GDP Growth Improved to 1.1 Percent in the First Quarter

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The Bureau of Economic Analysis said that real GDP grew by 1.1 percent in the first quarter, improving from the prior estimate of 0.8 percent. The revision included better data on nonresidential fixed investment and exports that previously reported, but it also found that consumer spending on services did not grow as fast as once thought either. Nonetheless, the bottom line was largely the same. The U.S. economy experienced relatively sluggish growth in the first quarter thanks to stagnant spending on consumer goods, declining business investment and still-soft export growth, even with improvements in this latest report. Read More

The U.S. Economy Had Sluggish Start to 2016

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The Bureau of Economic Analysis said that the U.S. economy grew just 0.5 percent in the first quarter of 2016, signifying a sluggish start to the year. This was slightly below the consensus estimate of real GDP growth of 0.7 percent, and it was down from 1.4 percent growth in the fourth quarter of 2015. In many ways, the data for the first quarter mirrored the trends seen in the prior report, with drags on growth coming from fixed business investment and net exports. Consumer spending on goods was the difference-maker in this release.  While personal consumption continued to be one of the brighter spots, adding 1.27 percentage points to headline GDP growth, that increase stemmed almost entirely from spending on services. The gain from goods spending was negligible – adding just 0.03 percentage points. This finding is consistent with the disappointing retail sales numbers observed year-to-date, particularly for durable goods, and it was another sign that Americans have pulled back on their purchases as a result of anxieties in the economic outlook. Read More

Fourth Quarter 2015 Real GDP Revised Higher at 1.4 Percent Growth

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The Bureau of Economic Analysis said that real GDP growth grew 1.4 percent at the annual rate in the fourth quarter. This was higher than the prior estimates of 0.7 percent and 1.0 percent. This latest revision reflected improvements in spending on services and growth in exports, but inventory spending was slower than in the most recent data release. Here are some trends in the data of note:

  • Personal consumption expenditures added 1.66 percentage points to real GDP growth in the fourth quarter, increasing 2.4 percent at the annual rate. The bulk of that contribution came from services, which added 1.30 percent to the headline figure, especially from spending on food services, health care and recreation. In contrast, spending on durable and nondurable goods eased from growth rates seen in the third quarter, suggesting that consumers were holding back in the fourth quarter from making larger purchases.
  • Businesses were also holding back on capital spending. Nonresidential fixed investment subtracted 0.27 percentage points from real GDP in the fourth quarter, with decreased spending on equipment, intellectual property products and structures. Slower inventory spending was also a factor, subtracting 0.22 percentage points. In contrast, residential investment rose by an annualized 10.1 percent in the fourth quarter on strength in the housing market, adding 0.33 percentage points. As a whole, gross private domestic investment served as a drag on real GDP growth, reducing the headline figure by 0.16 percentage points.
  • Net exports were also a drag on growth, subtracting 0.14 percentage points from real GDP in the quarter. Goods exports declined by 5.4 percent at the annual rate in this report; whereas, goods imports were off by 1.3 percent. These data illustrate the significant headwinds faced by manufacturers from the strong dollar and sluggish economic growth in key markets. Indeed, U.S.-manufactured goods exports fell 6.1 percent last year.

Overall, demand and output remain significantly challenged in the manufacturing sector, and business leaders remain nervous in their economic outlook. The current expectation is for real GDP to increase by 2.1 percent in 2016, with manufacturing production up 1.5 percent.

The U.S. Economy Slowed to Just 0.7 Percent Growth in the Fourth Quarter

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The Bureau of Economic Analysis said that the U.S. economy grew just 0.7 percent in the fourth quarter at the annual rate, decelerating from 3.9 percent and 2.0 percent growth in the prior two quarters, respectively. For the year as a whole, real GDP increased 2.4 percent in 2015, the same pace as observed in 2014. The preliminary data were pulled lower by weak business investment, inventory spending and net export figures, with consumer spending being one of the larger bright spots in the report. With that said, personal consumption expenditures rose an annualized 2.2 percent in the fourth quarter, easing from 3.0 percent growth in the third quarter. Consumer spending added 2.1 percent to real GDP in 2015, and in the fourth quarter, it added nearly 1.5 percentage points to the headline figure. This finding mostly mirrors decent but softer-than-desired retail spending activity seen at the end of the year, as Americans remain somewhat anxious about the economic outlook. Read More

U.S. Economy Grew 2.0 Percent in the Third Quarter

By | Economy, General, Shopfloor Economics, Shopfloor Main | No Comments

The Bureau of Economic Analysis said that the U.S. economy grew 2.0 percent in the third quarter. That is higher than the original estimate of 1.5 percent, but slightly lower than the 2.1 percent figure released last month. The largest variable in these three estimates was the impact of inventory spending, with businesses replenishing their stockpiles at a slower pace in this report than in the last one (but not as severe as originally thought). In the end, spending on private inventories subtracted 0.71 percentage points from real GDP growth in the third quarter. One upside to this, of course, is that a pickup in demand would necessitate additional production because of depleted inventory stockpiles. That could yield somewhat better growth moving forward.

For now, however, the current forecast is for real GDP to increase by 2.0 percent once again in the fourth quarter. The outlook for 2016 is for the economy to grow by 2.4 percent. Read More

First Quarter Real GDP Upwardly Revised to a Decline of 0.2 Percent

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The Bureau of Economic Analysis said that the U.S. economy shrank by 0.2 percent in the first quarter. This second revision was an improvement upon the 0.7 percent decline seen in the previous estimate. Looking at the newer data, the improvement came from slightly better figures for personal consumption, nonresidential fixed investments, inventory replenishment, and state and local government spending. Yet, the underlying trends were not altered much, including the following:

  • The largest drag on growth in the first quarter was from net exports, subtracting 1.9 percentage points from the headline number. In this revision, the decline in goods exports was slower than in the prior release (down 7.5 percent instead of 14.0 percent), but this was offset by a bigger increase in goods imports (up 7.2 percent instead of 5.1 percent). International demand for manufactured goods exports has been dampened by the strong dollar and continued softness in economic markets abroad. Read More

Real GDP Grew 2.2 Percent in the Fourth Quarter, Consistent with its Earlier Estimate

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The Bureau of Economic Analysis said that real GDP grew 2.2 percent in the fourth quarter.  As such, headline growth did not change in this second revision from its earlier estimate, released one month ago. The U.S. economy expanded 2.4 percent in 2014, only slightly better than the 2.3 percent and 2.2 percent rates seen in 2012 and 2013, respectively. Of course, that somewhat understates the strength of the economy mid-year, when real GDP growth averaged a rather robust 4.8 percent in the second and third quarters. Read More