1Q2012 Gross Domestic Product: Third (Final) Estimate

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The Bureau of Economic Analysis (BEA) estimated 1Q2012 growth in real U.S. gross domestic product (GDP) at a seasonally adjusted and annualized rate of 1.9 percent, down noticeably from the 4Q2011 rate of 3.0 percent. Personal consumption expenditures (PCE), private domestic investment (PDI), and net exports (NetX) contributed to 1Q growth in that order; government consumption expenditures (GCE) exerted a “drag.”
 

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Consumer Metrics Institute (CMI) summarized the GDP report as follows:

Although the headline number was unchanged, there were signals within the details that the economy is shifting in significant ways:

-- The inventory growth cycle has likely begun to reverse, with producers sensing that inventories have grown more than enough to support disappointing levels of consumer spending. Historically such realizations come only after inventories have actually grown too large, causing subsequent quarterly production numbers to drop as inventories are drawn down to levels justified by actual sales.

-- Federal defense spending is contracting fast enough to remove nearly half a percent from the GDP's annualized growth rate. This is the flip side of the U.S. disengagement from Iraq, and it should at least continue as the disengagement spreads to other theaters of operation.

-- In this revision the growth rates in foreign trade flattened substantially relative to the view held only a month earlier. In the BEA's sequential estimating process the trade numbers are generally the last to firm up, and it is clear that the numbers finally came in far softer than the trade experts at the BEA had anticipated during the first two estimates. Although the nominal trade numbers are still increasing quarter-to-quarter, the actual rate of growth was only half of that previously projected -- signaling that the global economy has been weaker than the BEA's trade experts had expected.

-- The now-weaker growth in consumer spending (such as it is) has not come from any material growth in per capita disposable income. It remains hard to see how an extra $2 per year per consumer is going to provide significant long term growth for this economy. Any reported consumer spending growth is neither organic nor long-term sustainable -- and likely fueled by governmental student loans and household cash flows improved by refinancing or mortgage defaults (whether strategic or involuntary).