First Quarter GDP Growth – Advance Estimate: Better Than It Looks


The Bureau of Economic Analysis (BEA) released the advance estimate of real GDP growth for the first quarter of 2012. The advance estimate shows real GDP grew at a seasonally adjusted annual rate of 2.2 percent. This is a deceleration from a 3.0 percent rate in the fourth quarter of 2011. The deceleration was the result of slowing inventory investment and declining non-residential fixed investment.

The report is better than it looks because the deceleration from last quarter is really a return to the trend in improvement in 2011 as real GDP growth strengthened from 0.4 percent to 1.8 percent over the first three quarters. The 3.0 percent growth rate in the fourth quarter was inflated by inventory investment which contributed 1.8 percentage points to growth. Growth was expected to slow in the first quarter and inventory investment contributed a more reasonable 0.6 percentage points of the 2.2 percent growth rate. It’s also worth noting that growth in GDP less change in inventories strengthened to 1.6 percent from 1.1 percent last quarter.

A more tangible bright spot in the report is the strength of personal consumption expenditures (PCE) which expanded at a healthy 2.9 percent rate, up from 2.1 percent. PCE will be an important component of a self-sustaining recovery. But continued strength in PCE will depend to some degree on growth in income. Growth in real disposable personal income slowed to 0.4 percent from 1.7 percent. The growth in PCE this quarter was propped up by a decline in the savings rate, which dipped to 3.9 percent from 4.5 percent last quarter. Going forward we expect PCE growth to soften and disposable income growth to strengthen, moving both toward a better balance, hovering above 2.0 percent.



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