How We Got 3.2% GDP Growth In Q1

The Bureau of Economic Analysis released its first look at Q1 GDP growth this morning. BEA estimates that GDP grew at a solid 3.2% annual pace in the first quarter. That’s slower than the 5.6% pace of the previous quarter, but is otherwise the strongest showing since the third quarter of 2007.

The following chart illustrates how much various types of economic activity added to (or subtracted from) first quarter growth:

The big story is the return of the American consumer. Their spending increased at a 3.6% pace during the first quarter, the fastest pace in three years. (Consumer spending added 2.6 percentage points to overall growth because it makes up about 70% of the economy).

Business investment in equipment and software (E&S) showed continued strength, rising at a 13.4% pace (and adding 0.8 percentage points to overall growth). That’s down from the blistering 19% recorded in the fourth quarter, but is still remarkably strong.

Inventories–the big story in Q4–continued to boost growth as well. Inventories actually increased in the first quarter, after seven quarters of declines.

On the downside, construction continued to suffer, with both housing and non-residential structures declining. Government spending fell as well, as reduced spending by state and local governments more than offset a moderate increase in purchases by the federal government.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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