Looking for Growth

By Gus Krafve

May 10th, 2012

First quarter GDP growth is in and it shows the US economy grew at 2.2%; below the consensus estimate of 2.6%.  The good news is that the economy is growing. However, it remains concerning that economic growth is sluggish, coming in below the historical trend of 3.3% growth for the past several quarters.  Drilling down into the numbers, we see that the consumer is still spending for now despite rising gasoline prices.  Personal consumption was driven by motor vehicle purchases which accounted for half of the growth in GDP.  Conversely, government purchases fell at a 3.0% annual rate, led by a 5.6% drop in federal spending, mostly national defense.  State and local governments cut spending at a 1.2% annual rate.  This sector has contracted in 14 of the past 17 quarters, as the deep recession and slow recovery has led to decreased tax revenues and governmental belt tightening. 

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