Strategic Briefing | 4.29.2011 | US 2011:Q1 GDP

Economic growth slows sharply; new jobless claims rise
LA Times | Apr 29
Many analysts shrugged off the report that gross domestic product grew just 1.8% in the first part of the year — down from 3.1% in the fourth quarter last year. Economists said the slowdown was caused mostly by temporary factors such as the harsh winter weather and a surge in oil and food prices, which took a bite out of consumer spending and the nation’s trade. Officials at the Federal Reserve as well as many private forecasters expect GDP growth to bounce back to 3% or higher in the rest of the year. But that depends partly on an easing of global economic and political problems, particularly the unrest in the Middle East and North Africa that is behind the spike in petroleum prices.

US GDP growth slows to 1.8%, surprise jump in jobless rate
Economic Times | Apr 29
“Coming in at 1.8, to get to where Fed’s forecast is, you’re going to need some robust growth,” said Bob Andres, chief investment strategist and economist at Merion Wealth Partners in Berwyn, Pennsylvania. ‘In my mind, the Fed’s forecast and the Street’s forecast are more than likely a little too optimistic.” Growth in the first quarter was curtailed by a sharp pull back in consumer spending, which expanded at a rate of 2.7% after a strong 4% gain in the final three months of 2010. Rising commodity prices meant the consumers , which drive about 70% of US economic activity, had less money to spend on other items. The report also underscored the pain that strong food and gasoline prices are inflicting on households.
Fresh blow for global economy as US slows
The Independent | Apr 29
Economists scaled back their expectations for the first quarter GDP figure as February and March drew on, but the first estimate published by the Commerce department yesterday was modestly weaker than even those lower forecasts. The consensus estimate had been 2 per cent. Many analysts noted temporary factors were keeping the figure low. Federal government spending dropped 7.9 per cent, with defence spending down 11.7 per cent, and commercial construction unexpectedly plunged 21.8 per cent. “Wild swings in government spending from quarter to quarter are notuncommon and are usually reversed quickly, and a severe series of winter storms held back construction in the first quarter,” said Kevin Logan, chief US economist at HSBC. But he added: “For the year as a whole, constraints on government spending, in combination with moderate growth in consumer spending, will probably keep GDP growth below 3 per cent. It appears likely that GDP growth will fall short of the Fed’s recent forecast of 3.1 per cent to 3.3 per cent on a fourth quarter-to-fourth quarter basis.”
Economic growth slows to 1.8% in first months of 2011
The Washington Post | Apr 28
“All things considered, it could have been worse,” said Paul Ashworth, chief U.S. economist at Capital Economics, noting the temporary impact of energy prices and other factors. “Nevertheless, in a quarter when the economy began to benefit from additional monetary and fiscal stimulus, we had originally expected a lot more.”
Today’s GDP Report Perpetuates Myth That Imports “Subtract” from Growth
Cato Institute | Apr 28
The U.S. Commerce Department just released its initial snapshot of first-quarter economic growth this morning. The new news is that economic growth slowed to 1.8 percent, a disappointing rate that will do nothing to shrink unemployment. The old news is that the report continues to label rising imports as a “subtraction” from gross domestic product (GDP)…In Table 2, the Commerce Department calculates that rising imports subtracted 0.72 percentage points from real GDP in the first quarter. This will be widely interpreted as meaning that GDP growth would have been 2.5 percent last quarter if those burdensome imports had not increased. This is all bunk, as I try to explain in a Cato study released earlier this month, titled, “The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a ‘Drag on Growth.’” One source of confusion is the fact that the government estimates GDP, not by measuring what we actually produce each quarter, but by measuring what we spend.
U.S. real GDP advances by 1.8% (annualized) in Q1 as government spending pulls back
TD Economics | Apr 28
As Chairman Bernanke noted in his press conference yesterday, the slowdown in economic growth following the 3.1% print in the fourth quarter reflects a number of transitory elements including snow storms and a sharp decline in defense spending. Fortunately, economic growth appears to have gained traction as the quarter drew to a close in March. This sets the stage for a better result in Q2, which we expect will come in above 3.5%. Importantly, despite the slowdown in economic growth, the first quarter of this year was the best yet in terms of (ex-census) job creation with close to 500,000 new positions. Moreover, a number of indicators support a return to a more solid pace of expansion in the months ahead – in particular, credit quality continues to improve and credit growth to consumers and businesses has accelerated, giving further comfort that the slowdown in activity in the first quarter is a temporary blip. While government spending is likely to continue to be a drag over the next year, economic momentum is in the hands of the private sector, which will continue to drive the recovery forward.
2011:Q1 Real GDP Growth – One of the Three Smallest Gains in the Recovery
Northern Trust | Apr 28
In the first quarter, consumer spending (+2.7%) and equipment & software spending (+11.6%), and exports (+4.9%) and inventories ($43.8 billion vs. $16.2 billion) made positive contributions to real GDP growth, while residential investment expenditures (-4.1%),
non-residential structures (-21.8%), and government spending (-5.2%) partially offset these gains. It is noteworthy that real GDP in the first quarter crossed the peak reading in the fourth quarter of 2007 by a significant measure (see Chart 2) and the U.S. economy is most certainly on the path of expansion. Stronger growth is predicted for the second quarter of 2011 and a more moderate pace is likely in the second-half of the year, which puts the Q4-to-Q4 increase in 2011 around 2.9%. The FOMC’s projections show the central tendency for real GDP growth as 3.1%-3.3% in 2011.