Posted on July - 23 - 2011
U.S. GDP growth slowed in this year’s first quarter
In the first quarter of this year, U.S. gross domestic product (GDP) growth slowed to +1.8%, seasonally adjusted and annualized, from +3.1% in the final quarter of last year. The Bureau of Economic Analysis within the Department of Commerce calculates the U.S. output numbers.
The year-over-year change dropped to +2.3% from +2.8% in Q4 10. The most recent peak for year-over-year change came in Q3 2010, at +3.2%. The year-over-year change has been positive for the past six quarters, although Q4 09 was minimal, at only +0.2%.
Consumer spending increased in the first quarter of 2011 (2.7%), as it did in Q4 10 (+4.0%), pulling the economy in its wake. The household sector accounts for 70% of total U.S. output.
Spending on durable goods (+10.6% annualized) was much stronger than on non-durables (+2.1%). Still, the durables expansion in the latest quarter was only about half what it was in the previous quarter, +21.1%.
Durables are dominated by motor vehicles and parts. There have been impressive sales gains in the auto sector as the recovery has taken hold. However, looking forward, the high cost of gasoline may put a crimp in demand.
Two other factors accounting for the Q1 GDP gain were an increase in private non-farm inventories and investment in equipment and software (+11.6%). The latter was particularly strengthened by investment in transportation equipment.
Airplanes and railway rolling stock may be other product lines that will suffer sales headwinds the longer fuel costs stay high.
Detracting from GDP growth were non-residential investment on structures (-21.7% annualized) and government spending (-5.2%). Government spending on national defense was particularly restrained (-11.7%).
At the first press conference ever held following a Federal Reserve rate-setting meeting, Chairman Ben Bernanke set out the difficulty in balancing the goals of facilitating more jobs while keeping inflation under wraps.
Unemployed workers may have little sympathy for the second goal, but the long-term health of the economy is very much dependent on its success. Nevertheless, U.S. monetary policy will remain stimulatory for the foreseeable future.
On the same day as the rather mediocre GDP figures were released, the latest weeks initial jobless claims data was released. This showed a surprising increase to 429,000 after nine of the 11 previous weeks came in at a more encouraging 400,000 or less.
As the U.S. is showing what will probably be temporary signs of stuttering, there are indications of strong growth elsewhere in the world.
It has just been reported the number of workers unemployed in Germany has fallen to the lowest level (2.97 million) in 19 years, dating back to 1992.
German auto manufacturers are dramatically increasing sales to Russia, India and China. Unit sales of German automobiles to China increased 30% year-over-year in the latest quarter.
The tight labour market in Europes biggest economy has perhaps conflicting implications. It will lead to greater strength in consumer spending, thereby contributing to better overall growth not just in Germany, but in neighboring nations as well, through drawing in imports.
On the other hand, there is the danger of inflation becoming more entrenched if there is a ratcheting up in wage demands. These may become more common to deal with current inflationary pressures that are being caused by commodity price spikes.
On April 7, the European Central Bank (ECD) raised its key policy-setting interest rate for the first time post-recession, to 1.25%.
As for this nation, Statistics Canada has recently released official GDP figures for 2010. The year-over-year gain was 3.3%, following on the heels of a 2.6% decline (exactly the same as in the U.S.) in 2009. In 2008, Canada (+0.5%) performed a little better than the U.S. (0.0%).
Most analysts expectations for 2011 growth place the forecast close to +3.0% in both countries. The Bank of Canada is saying +2.9% for north of the 49th parallel, to be followed by +2.6% in 2012 and +2.1% in 2013.
In 2010, the province with the fastest growth rate was Newfoundland and Labrador (+4.8%). The end of a mining strike helped, as did increased oil and gas extraction and strong engineering and residential construction. The construction sector benefited from work on a new mineral ore processing plant.
Alberta recorded the next fastest growth rate (+4.0%), partly due to rising international oil prices. B.C. (+3.8%) wasnt far behind, aided by forestry sector and coal mining exports, with Asia as a preferred customer. The February Winter Olympic Games also helped B.C.s tourism and accommodation industries.
Ontario performed at the same pace as the country as a whole. Statistics Canada particularly noted a 41% rise in motor vehicle production year over year, much of that for shipment to the U.S.
Quebec (+2.5%) lagged somewhat. The other provinces in the Atlantic N.B. (+2.7%), N.S. (+2.3%) and P.E.I. (+1.8%) also underperformed relative to the national rate.
Manitoba and Saskatchewan (both +1.4%) tied for last place. Bad weather affecting crop yields was a factor.
The territories did better than the provinces, with Nunavut (+8.9%) setting a torrid pace, due to new mining activity and greater exploration efforts. The N.W.T. and Yukon (both +5.3%) also recorded growth rates exceeding anywhere south of the 60th parallel.
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