GDP drops to 2.2% in Q1

posted at 8:41 am on April 27, 2012 by Ed Morrissey

The US economy slowed in the first quarter of the year, dropping from the previous quarter’s 3.0% to 2.2%, according to the latest report from the Department of Commerce:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.2 percent in the first quarter of 2012 (that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2011, real GDP increased 3.0 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The “second” estimate for the first quarter, based on more complete data, will be released on May 31, 2012.

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

The deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment that were partly offset by accelerations in PCE and in exports.

Gross domestic purchases dropped even farther in Q1, from 3.1% in the previous period to 2.1%.  That demand fell even as current-dollar personal income rose 3.7% and disposable personal income increased 2.8%, both improvements over the previous quarter.  One explanation would probably be the rapid increase in gas prices, which ate away at disposable income, but nervousness over the economy probably also played some part.

Don’t expect too much from next quarter, either.  More than a quarter of the growth seen in Q1 can be attributable to inventory expansion.  Real final sales of domestic product, which excludes inventory expansion, only grew 1.6%, an improvement over 2011Q4′s 1.1% but still weak and indicative that demand isn’t keeping pace with production.  That will force discounting in future quarters to clear ever-increasing inventories, cutting into profits and weakening the job market even further.

Update: Not even Reuters can make this one look good, calling it “tepid” and noting that it missed expectations:

U.S. economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a moderate pace, but stronger demand for automobiles softened the blow.

Gross domestic product expanded at a 2.2 percent annual rate, the Commerce Department said on Friday in its advance estimate, moderating from the fourth quarter’s 3 percent rate.

While that was below economists’ expectations for a 2.5 percent pace, a surge in consumer spending took some of the sting from the report. However, growth was still stronger than analysts’ predictions early in the quarter for an expansion below 1.5 percent.

Although the details were mixed, the GDP report offered a somewhat better picture of growth compared with the fourth quarter, when inventory building accounted for nearly two thirds of the economy’s growth. In the first quarter, demand from consumers took up the slack.

Actually, that last assertion is wrong.  If it were true, real final sales of domestic product would have equaled or surpassed the overall GDP number, and the growth in gross domestic purchases dropped by a third from last quarter.  I’m not sure what report Reuters was reading, but consumers didn’t “take up the slack.”  Inventory expansion still accounts for a quarter of the growth in the opening GDP period this year.

Politically speaking, this makes the White House’s “we’re on the right track” argument a little more difficult to make.  A 2.2% GDP rate won’t be a disaster on the stump, but the trend is going once again towards another Stagnant Spring.  If it gets revised downward in the next two months, Obama will have a tough time talking about the economy.  Expect a lot of discussion of dog carriers and condoms in the weeks ahead.


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…and by the time the GOP do an ’86-style tax reform in may 2013, and bring deficit down to manageable, reform entitlements, and bring the capital off the sidelines, eliminate stifling reg, wipe the slate of dodd-frank and PPACA, and start issuing drilling permits and build keystone, and get baaken rolling, and we get a real rebound from recession…

The likes of McConnell and Boehner are not going to reform entitlements, nor are they going to eliminate Dodd-Frank. The best we can hope for on Dodd-Frank is they pass a couple of minor reforms of it and reel in the regulators a tiny bit. But no big changes, unfortunately.

SD on April 27, 2012 at 9:36 AM

Right. So looking forward to Q2, if May and June don’t see a large uptick in durable goods orders, how much do you think it’ll shave off Q2 GDP? Do you have a guess?

Weight of Glory on April 27, 2012 at 9:26 AM

I think Ed had my guess above just before the update.

Steve Eggleston on April 27, 2012 at 9:38 AM

Bye Obama

Conservative4ev on April 27, 2012 at 9:39 AM

I have to ask, how does the government measure “personal consumption”? If it’s measured at the point of purchase, (POP), then I might submit that the increase in consumption might be because of the rise in inflation no one cares to report—meaning, if the cost have gone up, so have the “higher recorded sales” / consumption calculations.

Or, am I only “speculating”???

You’re right. It’s one of the dumbest measures by the govt because of what you said. If gas is up 10% and people spend 10% more at gas stations, that’s counted as ” a 10% increase in retail spending”.

angryed on April 27, 2012 at 9:39 AM

No. Read what I wrote again. I wrote it was a contraction from Q4…which it is. 3.0% to 2.2% is a contraction…from Q4.

Weight of Glory on April 27, 2012 at 9:34 AM”

I did read what you wrote. You said it was a contraction in the economy. But it isn’t; it’s a contraction from the 4th quarter growth rate.

Look, the only reason I’m trying to emphasize this is because other readers seem to think that if the 2nd quarter growth numbers are even smaller that means there’s a recession. It doesn’t mean that, because these aren’t negative growth rates, just weak and declining growth rates.

SD on April 27, 2012 at 9:40 AM

Bah, missed a closed quote.

SD on April 27, 2012 at 9:40 AM

And how is that different from the democrats and their BFF’s in the media today? Anything that can go wrong…it will be the republicans fault..whether they are in office or not. Go to any libtard infested website and they are still blaming Reagan for today’s woes.

HumpBot Salvation on April 27, 2012 at 9:34 AM

I’m talking about massive protests, no cop car will be safe from poop.

Wagthatdog on April 27, 2012 at 9:42 AM

The bad news, +2.8% isn’t exactly gangbusters.

Steve Eggleston on April 27, 2012 at 9:21 AM

GDP in 2004:

Q1: 2.7%
Q2: 2.6%

So Bush’s election year economy wasn’t exactly gangbusters, was it?

angryed on April 27, 2012 at 9:44 AM

The economy would be better if Obama and the Democrats weren’t creating new debt at OVER THREE TIMES the rate of Bush and the Republicans.

Historical Debt Outstanding – Annual 2000 – 2010
——————————–
09/30/2007 $9,007,653,372,262.48
09/30/2006 $8,506,973,899,215.23
——————————–
New debt created in FY 2007: $500,679,473,047.25

Debt to the Penny
——————————–
01/31/2012 $15,356,140,493,616.06
09/30/2011 $14,790,340,328,557.15
———————————-
New debt created in First Four Months of FY 2012: $565,800,165,058.85

***

Bush and the Republicans, in their last Republican-majority budget (FY 2007), created $500.7 Billion in new debt.

Obama and the Democrat majority, in the current fiscal year, added more debt that that in just the first four months! $565.8 Billion in just four months!

At this rate, the new debt created in FY 2012 will be well over three times the new debt created by the Republicans in FY 2007.

I don’t think we can emphasize that enough. The Democrats won the 2006 and 2008 elections by calling the Republicans fiscally “irresponsible” and “unpatriotic”. The Democrats, including Pelosi and Obama, committed to “Pay-Go”. Pelosi specifically said during her first speach as Speaker of the House:

After years of historic deficits, this 110th Congress will commit itself to a higher standard: pay-as-you-go, no new deficit spending. Our new America will provide unlimited opportunity for future generations, not burden them with mountains of debt.

- New Speaker Nancy Pelosi, 01/04/2007

What have the Democrats actually done since winning majority control of the budgeting and spending process in 2007? They’ve tripled the rate of deficit spending and burdened future generations with mountains of debt.

Democrats are liars and hypocrites. Force them to face the facts. They criticized the Republicans for creating $4 Trillion in new debt over the course of 12 years (FY 1996-2007). Democrats have already added over $6.5 Trillion in new debt over the course of just 4.5 years (FY 2008-first half FY 2012).

ITguy on April 27, 2012 at 9:45 AM

I have to ask, how does the government measure “personal consumption”? If it’s measured at the point of purchase, (POP), then I might submit that the increase in consumption might be because of the rise in inflation no one cares to report—meaning, if the cost have gone up, so have the “higher recorded sales” / consumption calculations.

Or, am I only “speculating”???

You’re right. It’s one of the dumbest measures by the govt because of what you said. If gas is up 10% and people spend 10% more at gas stations, that’s counted as ” a 10% increase in retail spending”.

angryed on April 27, 2012 at 9:39 AM

Only in nominal terms. In “real GDP” terms, that 10% price hike is factored (“deflated”) out. Back on the first page of comments, I linked to the BEA’s explanation of Personal Consumption Expenditures.

Steve Eggleston on April 27, 2012 at 9:46 AM

I guess the nitwits will have the stock market boom today on profits and some good economic booming 2.2 gdp growth hahahhahaha

Conservative4ev on April 27, 2012 at 9:47 AM

I think Ed had my guess above just before the update.

Steve Eggleston on April 27, 2012 at 9:38 AM

Thanks

Weight of Glory on April 27, 2012 at 9:47 AM

So Bush’s election year economy wasn’t exactly gangbusters, was it?

angryed on April 27, 2012 at 9:44 AM

yeah. but everybody hated the dems nominee that year. we’re good.

t8stlikchkn on April 27, 2012 at 9:48 AM

“This is a big f’in deal” – Slow Joe Biden

viking01 on April 27, 2012 at 9:49 AM

and a big effing stick

t8stlikchkn on April 27, 2012 at 9:50 AM

Only in nominal terms. In “real GDP” terms, that 10% price hike is factored (“deflated”) out. Back on the first page of comments, I linked to the BEA’s explanation of Personal Consumption Expenditures.

Steve Eggleston on April 27, 2012 at 9:46 AM

But food/gas is excluded from core inflation.

angryed on April 27, 2012 at 9:50 AM

Expect a lot of discussion of dog carriers and condoms in the weeks ahead.

The new growth industries.

NeighborhoodCatLady on April 27, 2012 at 9:50 AM

For instance, we learn that South Carolina is a “leaner?” Whatever.

cicerone on April 27, 2012 at 9:23 AM

..it’s kinda like being a bookie. I said this on another thread: Levin, Rove, Hannity, Morris, and the other commentators don’t get nearly as rich if Obama gets thrown out and Romney gets elected. We all go back to our daily lives, the economy improves, and politics stops being the center ring attraction it was for the last four years. The only people wrapped up in this will be FuriousEd who will bleat tedious “I told you so” comments and rip the skin off of Romney and congress for every misstep they make. (Which, in this case will be welcome.)

Obama wins and Levin sells more books, Morris gets fatter (unless he explodes), and Hannity keeps ticking off his “dirty air and water”, “I bussed tables and worked in construction”, and “I just paid $6.00 for gas over on Long Island” bullet points and interrupting his guests 99% of the time.

Jeeee-zus! I gotta take a vacation. I am beginning to sound like FulminatingEd.

The War Planner on April 27, 2012 at 9:50 AM

Sales of dogmeat unexpectedly surged…

PatriotRider on April 27, 2012 at 9:51 AM

By Monday, we will have passed the 3 year mark since the last Democrat budget. They don’t want people to know how much debt they are creating.

ITguy on April 27, 2012 at 9:51 AM

I did read what you wrote. You said it was a contraction in the economy. But it isn’t; it’s a contraction from the 4th quarter growth rate
SD on April 27, 2012 at 9:40 AM

Last time. Here’s my comment:

True. Or you could say the economy contracted from Q4, but we all know what was meant.

Weight of Glory on April 27, 2012 at 9:22 AM

I even put in in bold so you can see I didn’t say what you’re claiming I said. I did NOT say it was a general economic contraction. I said the economy contracted from Q4. Seems to me you’re getting stuck on the word “contraction” and want to ensure the use of the word “growth”. Which is fine. They economy did grow…but contracted from the Q4 number.

Weight of Glory on April 27, 2012 at 9:52 AM

One term…

PatriotRider on April 27, 2012 at 9:52 AM

Sales of dogmeat unexpectedly surged…

PatriotRider on April 27, 2012 at 9:51 AM

North Korea ! Please send recipes !

viking01 on April 27, 2012 at 9:55 AM

This just in – April Consumer Sentiment Index better than expected at 76.4.

Steve Eggleston on April 27, 2012 at 9:56 AM

But food/gas is excluded from core inflation.

angryed on April 27, 2012 at 9:50 AM

While true, that does not apply here. Indeed, the individual components that make up inflation are weighted indivudually.

Steve Eggleston on April 27, 2012 at 9:57 AM

This just in – April Consumer Sentiment Index better than expected at 76.4.

Steve Eggleston on April 27, 2012 at 9:56 AM

Market spiking on that news right now. So bad news is good news for the market and good news is good for the market…

Weight of Glory on April 27, 2012 at 10:00 AM

Weight of Glory on April 27, 2012 at 9:52 AM

Fair enough, thanks for the clarification. I just want to make sure our comments don’t overplay this. Chicago Jesus’ economy is bad enough without us claiming a recession that can’t be shown by the numbers.

SD on April 27, 2012 at 10:04 AM

The story that appears in the breaking section about Obama’s hit list? That needs to be Drudge’s TOP headline. Truly abominable. Worse than spending my money for fund raising and campaigning.

And while we’re at it, why isn’t someone suing or forcing the Justice Department to stop Sebelius from spending money not authorized on Medicare? There are means in our system to stop this stuff. Can’t the people Obama is intimidating sue for character defamation? Does contributing to a political campaign make you a public figure so anyone can say anything?

Conservatives need to use the courts. This whole Obama government coup thing is getting very very scary.

Portia46 on April 27, 2012 at 10:04 AM

War planner
Your will never sound like crazyed, you don’t carry that much hate………

angrymike on April 27, 2012 at 10:06 AM

This just in – April Consumer Sentiment Index better than expected at 76.4.

Steve Eggleston on April 27, 2012 at 9:56 AM

Steve, I suppose these are two different reports?

April consumer confidence declines

WASHINGTON (MarketWatch) — A gauge of U.S. consumer confidence has declined for a second month, ticking down in April on lower expectations, even as views on the present situation increased, the Conference Board reported Tuesday.

The consumer-confidence index fell to 69.2 from a revised March reading of 69.5, according to the New York-based Conference Board, a private research group. A prior estimate had pegged March’s confidence level at 70.2.

“As was the case last month, the slight dip was prompted by a moderation in consumers’ short-term outlook, while their assessment of current conditions continued to improve,” said Lynn Franco, director of the Conference Board’s consumer research center. “Overall, consumers are more upbeat about the state of the economy, but they remain cautiously optimistic.”

Rovin on April 27, 2012 at 10:07 AM

Woops. Looks like I spoke to soon. Market now down. Whew! Back to the normal bad news is good news – good news is bad news. Thought I was crazy for a sec.

Weight of Glory on April 27, 2012 at 10:07 AM

So Bush’s election year economy wasn’t exactly gangbusters, was it?
angryed on April 27, 2012 at 9:44 AM

How did unemployment stack up, Captain S-Corp?

Chuck Schick on April 27, 2012 at 10:10 AM

War planner
Your will never sound like crazyed, you don’t carry that much hate………

angrymike on April 27, 2012 at 10:06 AM

..your* too kind!

(*The one grammatical error that drives him crazy.)

The War Planner on April 27, 2012 at 10:24 AM

Hmm… for the past three years I did want to see the economy pick up speed and recover, but now…I’m rooting for the economy to stay as it is. Whatever it takes to get the voters to wake up and come out in droves and cast a resounding vote of no confidence in this president is just fine with me. We’ve waited this long for a recovery and I’ve got no problem with waiting a little longer.

lynncgb on April 27, 2012 at 10:39 AM

How did unemployment stack up, Captain S-Corp?

Chuck Schick on April 27, 2012 at 10:10 AM

Way to switch the discussion around captain dolt. Steve E said 2.8% is crappy growth rate. Bush’s q1 and q2 gdp growth for 2004 were below 2.8%. Put down the Rush/Sean crack pipe and try thinking for yourself, just once.

angryed on April 27, 2012 at 10:39 AM

Market spiking on that news right now. So bad news is good news for the market and good news is good for the market…

Weight of Glory on April 27, 2012 at 10:00 AM

No. Good news is good news for the market. It’s on RomneyAir that good news = bad news and vice versa.

Sorry Romney Kidz, your boy will never be president.

angryed on April 27, 2012 at 10:41 AM

I’m rooting for the economy to stay as it is.

lynncgb on April 27, 2012 at 10:39 AM

A true patriot!

angryed on April 27, 2012 at 10:42 AM

It would be bad for all Americans if the economy cycled up between now and the election because it might facilitate the continuation of terrible fiscal/economic policies for 5 more years.

Is that difficult for you to understand?

blink on April 27, 2012 at 10:45 AM

So the economy getting better would be bad because the policies that are making it better would be continued which would lead to a bad economy.

Got it.

angryed on April 27, 2012 at 10:49 AM

By the way Patriots, wasn’t we supposed to be in a great depression by now after the downgrade last summer? Remember all the dire predictions made by Sean/Rush? Skyrocketing interest rates!!! Mass unemployment!!! Stock market crash!!!

What happened?

Stocks went up, interest rates went down and unemployment has dropped 1.5%.

Poor Romney.

angryed on April 27, 2012 at 10:52 AM

weren’t

angryed on April 27, 2012 at 10:52 AM

So the economy getting better would be bad because the policies that are making it better would be continued which would lead to a bad economy.

Got it.

angryed on April 27, 2012 at 10:49 AM

What policy would that be?

Conservative4ev on April 27, 2012 at 11:05 AM

We should start a pool on what the real GDP will be. Oh wait! That will be hard to do since Hilda Solis will probably not publish anything close to reality.

The value we have will receive a downward reduction, so we can start a pool about what propaganda she releases next!

Any takers?

dogsoldier on April 27, 2012 at 11:12 AM

Way to switch the discussion around captain dolt. Steve E said 2.8% is crappy growth rate. Bush’s q1 and q2 gdp growth for 2004 were below 2.8%. Put down the Rush/Sean crack pipe and try thinking for yourself, just once.
angryed on April 27, 2012 at 10:39 AM

Still haven’t answered my question, couchsurfer.

Chuck Schick on April 27, 2012 at 11:15 AM

2.2% GDP is a tax dodge!!1elelventgyty!!11

chimney sweep on April 27, 2012 at 11:30 AM

Way to switch the discussion around captain dolt. Steve E said 2.8% is crappy growth rate. Bush’s q1 and q2 gdp growth for 2004 were below 2.8%. Put down the Rush/Sean crack pipe and try thinking for yourself, just once.
angryed on April 27, 2012 at 10:39 AM

What I remember is a 4% unemployment rate

Conservative4ev on April 27, 2012 at 11:37 AM

So overall, the economy was significantly better when Bush was president than it is now. GDP growth was better, unemployment was lower, taxes were lower, gas prices were lower, the deficit and national debt were lower etc.etc. And yet, the Democrats say we can’t go back to the “failed economic policies” of the Bush admininistration. Must be nice to have no touch with reality like those folks do.

eyedoc on April 27, 2012 at 11:56 AM

By the way Patriots, wasn’t we supposed to be in a great depression by now after the downgrade last summer? Remember all the dire predictions made by Sean/Rush? Skyrocketing interest rates!!! Mass unemployment!!! Stock market crash!!!

What happened?

Stocks went up, interest rates went down and unemployment has dropped 1.5%.

Poor Romney.

angryed on April 27, 2012 at 10:52 AM

KeninCT?

Nick_Angel on April 27, 2012 at 12:32 PM

This should scre the living snot out of everywhere

Negative GNP Multiplier, -2.5 X!!!

http://www.zerohedge.com/news/chart-day-change-q1-american-debt-and-gdp

The US (and most of the world) is so screwed….

Yikes!

Jean

Gauthijm on April 27, 2012 at 12:46 PM

Morning In America

1984 Q1 GDP: 7.4%

Mourning In America

2012 Q1 GDP: 2.2%

Resist We Much on April 27, 2012 at 12:47 PM

Zerohedge charts show we never left recession:

http://www.zerohedge.com/news/jim-quinn-explains-why-weve-never-left-recession

FTA:

“The truth is that inflation is underreported by the Federal government by at least 5%. Therefore, if GDP was properly adjusted for real inflation, we have never left the recession.”

dogsoldier on April 27, 2012 at 2:01 PM

Couple interesting things about todays economic news.

First of course is the GDP, which was not only disappointing on the face of it, but was even worse upon closer inspection. Fact of the matter is, GDP was boosted by one time activities which we are unlikely to see at play again in future quarters. If those one time activities were taken out of play, GDP would’ve been barely over 1%

The second, and arguably more interesting news was the consumer confidence index. It did indeed show a modest upward tick over last month, but upon closer inspection its not all that great of news either. A larger portion of Americans view their own financial situation badly verses what we’ve seen previously.

What this suggests is that the MSM’s attempts to convince people the economy is improving is having some effect, even as the situation is getting worse. Thing is, this is a situation that can’t possibly last. Eventually the situation on the ground will trump Obama’s echo chamber in the news media.

Then of course was the news that 1/3 homes sold in the past three years is underwater, as the value of the homes are worth less than they’re actually worth. This really isn’t surprising news, but it does reinforce the fact that the housing market hasn’t recovered, and probably won’t recover for a few more years.

WolvenOne on April 27, 2012 at 2:40 PM

Stocks went up, interest rates went down and unemployment has dropped 1.5%.

Poor Romney.

angryed on April 27, 2012 at 10:52 AM

I’m sure the 88million people who are unemployed are comforted by that.

But hey…..that’s better than under W right?right?

Fighton03 on April 27, 2012 at 5:52 PM

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