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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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