Economist: U.S. GDP growth ‘mediocre’

The U.S. GDP grew 1.9% in the first quarter of 2011, down from the 3.1% during the fourth quarter of 2010 and considerably lower than the 3.7% growth in the first quarter of 2010.

However, the quarterly increase marks the 7th consecutive quarter of GDP growth, according to figures released Friday by the U.S. Bureau of Economic Analysis.

Economist Jeff Collins, who conducts data collection and analysis for The Compass Report, said higher energy prices, the “drag” of government debt problems in Europe and continuing weakness in the housing sector are just a few of the reasons behind slower GDP growth.

“That’s pretty mediocre growth, especially coming out of a recession,” Collins said of the GDP number.

Collins said the housing sector could be a drag for at least another two years, especially if rules are adopted that raise the financial bar on home lending standards.

Michael Pakko, chief economist and state economic forecaster with the Institute for Economic Advancement at the University of Arkansas at Little Rock, said the GDP report reflects “lackluster growth.”

The revised GDP data show slightly higher growth in the first quarter than previously reported. However, this doesn’t necessarily bode well for ongoing economic growth,” Pakko said. “The data updates were attributable to a downward revision in imports and an upward revision to inventory investment. Both of these changes imply weaker final demand than the previous data had indicated.”

Pakko said the first quarter numbers reflect “continued weakness in construction activity,” with investments in residential and non-residential construction falling by 0.46 percentage points. He also said declines in government spending at all levels contributed to the GDP decline.

Although Collins’ predicts economic growth will continue to be “mediocre,” he doesn’t see another downturn.

“The economy is slowing, but it doesn’t mean it will turn negative,” he said.

The GDP grew at an annual rate of 2.9% in 2010, -2.6% in 2009 and 0% in 2008.

Collins’ prediction of slow growth going forward is supported by the analysis of 44 economist forecasters surveyed by the Federal Reserve Bank of Philadelphia.

“Growth in the U.S. economy looks a little slower now than it did three months ago,” noted a statement from the Philadelphia Fed. “Our panelists expect real GDP to grow at an annual rate of 3.2 percent this quarter, down from the previous estimate of 3.5 percent.”

Real GDP is expected to grow 2.7% in 2011, down from the forecasters previous prediction of 3.2%. In 2012, the forecasters predict GDP will grow 3%. The GDP growth will fall to 2.8% in 2013, and grow to 3.3% in 2014, according to the forecasters. The 2012-2014 GDP predictions were all lower than previous expectations.

The forecasters also provided the following predictions on the annualized U.S. jobless rate.
2011: 8.7%
2012: 8.1%
2013: 7.5%
2014: 7%

As with the GDP forecasts, the forecasters see slower job growth numbers than in their previous estimates.

The BEA report provided the following detail on first quarter 2011 GDP:
• The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in personal consumption, a larger decrease in federal government spending, and a deceleration in nonresidential fixed investment that were partly offset by a sharp upturn in private inventory investment.

• Motor vehicle output added 1.18 percentage points to the first-quarter change in real GDP after subtracting 0.27 percentage point from the fourth-quarter change.

• Final sales of computers added 0.10 percentage point to the first-quarter change in real GDP after adding 0.35 percentage point to the fourth quarter change.

• The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.9% in the first quarter, 0.1 percentage point more than in the second estimate; this index increased 2.1% in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.3% in the first quarter, compared with an increase of 1.1% in the fourth.

• Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.7% in the first quarter, in contrast to a decrease of 0.2% in the fourth.