GDP Grows Less Than Expected in 1Q

This morning, the Bureau of Economic Analysis announced that the United States’ gross domestic product, the largest measure of how much the economy is growing, gained at an annual rate of 3 percent in the first quarter. The number is decent, but the government had estimated the rate at 3.2 percent last month and economists had expected higher — around 3.5 percent. From the report:

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a larger decrease in state and local government spending, and a deceleration in nonresidential fixed investment that were partly offset by an acceleration in PCE and a deceleration in imports.

Spending by regular consumers, rather than businesses, continues to pick back up. That’s good, as consumer spending accounts for some 70 percent of the economy and will help encourage businesses to hire more workers. The report showed that consumers increased spending about 3.5 percent in the first quarter, up from a 1.6 percent increase in the fourth quarter. And business’ post-tax earnings jumped too, up 9.7 percent, after rising 8.2 percent during the last quarter of 2009. Post-tax earnings are 42.7 percent higher year-on-year.