Q1 GDP growth came in at 1.8 percent – about what was expected. So, what does this mean? Well, 1.8 is less than 3.1 (the growth rate posted in the last quarter of last year) and is less than the rate most think the economy will grow at for the remainder of 2011. Therefore, Q1 appears to be a little bit of a pothole/air pocket/pause… which begs the questions, what caused this pothole and how concerned should we be?
As to the causes at play here, I think the commonly asserted speculations of weather and energy prices deserve some attention. First: weather. I’m doubtful that this is likely to be a major factor. If there were a delay in economic activity because of storms in January or early February, then we would’ve seen that activity appear later in February and March. I could write more about how many economists try to estimate the affects of weather on economic activity, but since I don’t think it is an important component of today’s release, I’ll leave it at that.
Second: energy prices. If businesses and consumers have to spend more on energy (i.e. gas, electricity, etc.), then they have less money to spend on other things. This story is more likely to be plausible. Looking at dollars spent, consumers did spend more on gas and fuel in the first quarter of 2011 than the fourth quarter of 2010 by about $48 billion, (that’s at an annual rate, as are almost all of the GDP numbers) while total consumer spending increased $170 billion—which means that increased spending on gas made up a big chunk of the overall increase in consumer spending. If energy prices hadn’t gone up as much, consumers may have spent that $48 billion on other things and GDP would have likely been around 0.3 percentage point higher. What is much harder to quantify is the pernicious affects higher energy prices have on sentiment – just look at how many stories have been written about higher gas prices leaving many Americans in a financial bind. We’ll write more about consumer spending and energy later.
Two additional, albeit unsatisfying, likely reasons for this pothole are: 1. “statistical stuff happens,” and 2. “economic growth ain’t always smooth.” Take a look at the chart below and our blog [3] from April 26. The first point here is that GDP growth hops around a lot during recoveries (the horizontal variation in the graph). The second interesting point is that Q1 2011 shows the highest private employment growth we’ve seen so far, and that’s a good thing.
~Mark Doms, Chief Economist, U.S. Department of Commerce
April 28, 2011
