First Quarter Growth Sluggish
- Jun 29, 2012
The Bureau of Economic Analysis released its final estimate for U.S. economic growth during the first quarter of this year on Thursday. Real GDP—the output of goods and services produced by labor and property located in the United States—increased at an anemic annualized rate of 1.9 percent in the first quarter of 2012, uncharged from the previous estimate. During the fourth quarter of 2011, real GDP increased at an annualized 3 percent.
The increase in real GDP during 1Q12 reflected positive contributions from personal consumption expenditures (people out shopping), exports, nonresidential fixed investment (commercial real estate, remarkably), residential fixed investment (people buying houses, even more remarkably), and private inventory investment. Personal consumption increased an annualized 2.5 percent during the first quarter, compared with an increase of 2.1 percent during 4Q11. People bought 13.7 percent more durable goods during the quarter, but only 2.1 percent more nondurable goods.
Lower government spending at all levels was a drag on economic growth during the first quarter. Real federal government consumption and gross investment, for example, decreased an annualized 5.9 percent during the first quarter, compared with a decrease of 6.9 percent in the fourth. Imports, which are a subtraction from GDP, increased.
Expectations low for EU summit
The EU summit get under way on Thursday under a cloud of doubt that anything significant would be said or achieved. Summits come and go, after all. The idea that European panjandrums are supposedly batting around during the summit is a pact to promote jobs (not called a stimulus, for some reason). The main figure being floated for such a program: 120 billion euros ($149 billion).
However, the prime ministers of Italy and Spain both reportedly refused to go along with any “growth package” until some short-term measures to reduce their borrowing costs were put in place, such as letting euro-zone rescue funds buy their bonds. The nation that would have to sign off on such a strategy, of course, is austerity-minded Germany. Chancellor Angela Merkel was slated to give a press conference about the summit’s progress on Thursday evening, European time, but cancelled it abruptly.
Investors made their skepticism clear enough. Ahead of the summit, yields on 10-year Spanish debt rose to just above 7 percent. By contrast, yields on 10-year German debt dropped a bit to around 1.5 percent, near the record lows of earlier this month of 1.127 percent.
Weekly unemployment claims edge down
The U.S. Department of Labor reported on Thursday that for the week ending June 23, the initial unemployment claims totaled 386,000, a decrease of 6,000 from the previous week’s revised figure of 392,000. The less volatile four-week moving average also turned downward, coming in at 386,750, a decrease of 750 from the previous week’s revised average of 387,500.
Wall Street apparently reacted unfavorably to the affirmation of the constitutionality of the Patient Protection and Affordable Care Act by the U.S. Supreme Court on Thursday morning, and then the lackluster opening of the EU summit. The Dow Jones Industrial Average was down 24.75 points, or 0.2 percent, while the S&P 500 lost 0.21 percent and the Nasdaq declined 0.9 percent.