The economy didn’t grow as much as the Obama administration first claimed in the initial quarter of 2010, the Commerce Department reported today. The Q1 GDP was first announced at an annualized growth rate of 3.2%, down from the previous 5.7% in 2009Q4. Later, the number got revised downward to 3.0%. Today marks the third revision in the Q1 GDP growth rate, and the third reduction, this time to 2.7%:
The U.S. economy grew at a 2.7 percent annual rate in the first quarter, less than previously calculated, reflecting a smaller gain in consumer spending and a bigger trade gap.
The revised increase in gross domestic product was smaller than the median forecast of economists surveyed by Bloomberg News and compares with a 3 percent estimate issued last month, figures from the Commerce Department showed today in Washington. Corporate profits climbed more than previously projected.
The revised figures showed an economy that was more dependent on inventory restocking and less driven by demand from consumers and businesses before the European debt crisis intensified. Unemployment, combined with the turmoil in financial markets and a lack of inflation, are among reasons Federal Reserve policy makers this week reiterated a pledge to keep interest rates low.
Inventory management accounted for more than half of the 5.7% figure from 2009Q4, too. This means that the recovery has remained anemic for the past year. It also portends a rough ride in 2010 for job seekers. The Obama administration initially estimated an annual growth in GDP between 3-4%, which would be respectable but not strong enough to eat into the large numbers of unemployed. If the entire year stays below 3%, which is now a likely outcome, we may not just see no reduction in unemployment but further increases, depending on how low that GDP number declines.
“We’re seeing a lot of signs that the pace of the recovery has moderated somewhat,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “You’re seeing probably more downside risks to growth in the near-term. If enough businesses believe it, they’re going to stop hiring and making capital investments.”
I think we’re seeing signs that the pace of recovery has never gone up enough to have moderated at all. The inventory management in the final quarter of last year disguised the fact that we only saw a real annualized growth rate of 2.2%. After inventory management is removed from 2010Q1’s GDP number, it’s probably going to be similar.
The recent volatility in the housing markets won’t help, either. With new home sales plunging to 1963 levels last may, construction will drop off, and that will have a domino effect through other markets. We may not see a double-dip recession, but 2010 may just wind up puttering along at somewhere between a 2.2%-2.5% growth rate, which means continued unemployment and malaise for the next year.