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Economics for your Classroom fromEd Dolan’s Econ Blog
US GDP Growth Stalls as the Fed Misses its Targets by a
Wide MarginPosted April 30, 2014
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April 30, 2014 Ed Dolan’s Econ Blog
US GDP Growth Stalls in Q1 2014
The advance estimate from the Bureau of Economic Analysis released on April 30 showed that US real GDP grew at just a 0.1 percent annual rate in Q1 2014
That is a big decrease from 2.6 percent in Q4 and 4.1 percent in Q3
Harsh winter weather undoubtedly contributed to the downturn
Phases of the Business Cycle
According to standard business cycle terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak
The recovery phase is the upward movement from the trough (low point) of the recession and continues until GDP again reaches its previous peak.
Once GDP moves above its previous peak, the expansion phase begins.
The latest data show that the expansion is continuing. Real GDP is now 6.3 percent above the previous peak
April 30, 2014 Ed Dolan’s Econ Blog
Sources of Growth by Sector
The slowdown was broadly based. The contribution from consumption was positive but lower than the 2.22 percentage points in Q3
Investment, including fixed, inventory, and residential, was negative
A decrease in expenditures of state and local government was only partly offset by an increase in Federal expenditures
Exports, which had been a strong point of the recovery, also turned negative
Contribution by sector to the .1% GDP growth in Q1
2014
Note: Imports are recorded in the national accounts with a negative sign, so the 0.24 percentage points shown here represent a decrease in imports
April 30, 2014 Ed Dolan’s Econ Blog
Export Growth Plunges
Exports have played a leading role in GDP growth during much of the recovery
Beginning in Q2 2012, the growth of exports slowed, but then recovered again in the last three quarters of 2013
In Q1 2014, exports took a dive, turning in by far their worst performance since the depths of the recession
April 30, 2014 Ed Dolan’s Econ Blog
State and Local Spending Turns Negative Again
Decreasing government spending, has been a negative influence on GDP growth for most of the past 3 years
In mid-2013, state and local government spending showed the first convincing growth for four years, more than offsetting the continued decrease in federal spending
In Q1 2014, the situation reversed, with S&L spending making a negative contribution that more than offset a tiny increase in federal government spending
April 30, 2014 Ed Dolan’s Econ Blog
The Fed is Missing its Targets
The Federal Reserve has set targets of 5.5 percent unemployment and 2 percent inflation, as measured by the index for personal consumption expenditures
As this chart shows, unemployment has gradually decreased during the recovery, but inflation, at 1.4 percent in Q1, is still running well below its target
The arrow shows the trend since 2010, which is clearly on track to miss the bullseye
April 30, 2014 Ed Dolan’s Econ Blog
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