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April 27, 2012

1Q data show economic recovery still fragile

April 30, 2012 – Government data released Friday show that economic growth cooled considerably during the first quarter, reinforcing NAFCU's view that a robust recovery is unlikely in 2012.

According to the Bureau of Economic Analysis' initial estimate, real gross domestic product expanded 2.2 percent in the first quarter, down from the fourth quarter's 3 percent growth pace. It was the first of three estimates to come from the bureau.

NAFCU Staff Economist Curt Long said the weaker growth rate likely reflects "the collective impact of high oil and gas prices, state and local budget cutbacks and economic problems in Europe."

The biggest weights on first-quarter growth were a 2.1 percent decline in fixed non-residential investment and a 3 percent slide in government spending. "The pullback in fixed non-residential investment cut economic growth by 0.22 percent, while the decline in government spending cost real GDP 0.6 percent," Long said.

On the bright side, consumer spending was the strongest since fourth-quarter 2010, rising 2.9 percent and contributing 2.04 percent to real GDP growth. In addition, the economy was aided by fixed residential investment, which rose 19.1 percent, contributing a positive 0.40 percent to real GDP growth. The change in private inventories contributed 0.59 percent of real GDP growth.

The core personal consumption expenditures deflator, the Federal Reserve's preferred measure of inflation, increased from 1.3 percent to 2.1 percent.

The bottom line, according to Long, is the numbers indicate the economic recovery remains on fragile footing. "Even as the labor market heals and credit conditions ease, economic growth is expected to be modest at best," Long said. "The pace of economic activity should become stronger following the election season."

NAFCU is forecasting real GDP will expand 2.6 percent in 2012 and 2.9 percent in 2013.

For more details, see the NAFCU Macro Data Flash on GDP (login required).

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