It was weaker than previously reported. The Bureau of Economic Analysis of the U.S. Department of Commerce reported Friday that the nation’s real Gross Domestic Product decreased at an annual rate of 0.7 percent during the first calendar quarter of this year. This is a revision of last month’s advanced estimate that had real GDP for the first quarter rising by 0.2 percent.
Some economists have cited a harsh winter and West Coast dockworker labor disputes among factors that caused the slowdown in the economy. But such factors can’t account for all of the weak economic performance. A decrease in exports and investment expenditures by businesses, and an increase in imports contributed to the downturn and counteracted positive contributions to the economy from increased personal consumption expenditures and inventory investment expenditures by businesses.
A turn around in the trade data could help for a return to growth in the second quarter of the year, but with Europe in economic difficulty and China increasing exports faster than their imports the economy is unlikely to get much help there. The United States continues to import more than it exports to Asia and Europe with continuous trade deficits to major trading partners like China, Japan, South Korea, Germany, France and Italy.
This latest data is another setback in the long road to a full employment economy. The hope is that it is only temporary. But these stalls have made the recovery so excruciatingly slow and long. Real GDP fell by 1.5 percent in the first quarter of 2011 and by 2.1 percent in the first calendar quarter of last year. Fortunately, the latter decline in real GDP was followed by strong second and third quarter growth spurts. This time almost no mainstream economist is expecting a second quarter of negative growth and a return to recession, but these fits and starts in economic recovery aren’t what most have been expecting.
The likely result of the disappointing downward revision in first quarter real GDP is that the Federal Reserve won’t raise interest rates in the next few months. It is more likely that any such move by the Fed will not happen till later this year. But the Fed will be watching for the June 5 employment report on the labor market performance in May. A strong labor market performance could change the picture dramatically.
Stock investors didn’t take kindly to the report on GDP. At the Friday close of trading, the Dow-Jones industrial average and the Standard & Poor’s 500 index were down 0.6 percent.