Real GDP Increased 2.2% in the First Quarter

The BEA reported today that the overall economy (real GDP) grew by 2.2% at an annual rate in the first quarter of 2012. However, the private components of GDP (personal consumption expenditures, gross private domestic investment, and net exports) grew by 3.4% from January-March, following a 4.6% increase in Q4 2011 (see chart above). In contrast, there was a 3.1% decline in total government spending in Q1, which created a drag on overall economic growth and brought real GDP growth down to 2.2%. The decrease in government spending was driven by a 12.1% decline in first quarter spending on national defense and ongoing cuts in state and local government spending (-2.2% in Q1).

The average growth rate in private real quarterly GDP since 2000 has been 1.76%, so the private sector of the U.S. economy expanded in the first quarter of 2012 at twice the average rate over the last 12 years (see chart). And going back to 1947, private real GDP has grown at an average rate of 3.27% per quarter, so the expansion of private GDP in the first quarter is slightly above the long-term historical average.

Bottom Line: Perhaps today’s GDP report is actually better than what is being reported, as the private sector of the U.S. economy grew at a rate slightly above the historical average, and twice the average rate since 2000.

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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