Initial 1st quarter growth is disappointing

http://www.ft.com/intl/cms/s/0/2f8b181c-9066-11e1-8adc-00144feab49a.html#axzz1tIeXzqg2 Comment/Summary: Overall, this is a good article that highlights why the U.S. GDP didn't grow as much as some economists predicted. US consumption increased, investment decreased slightly, and these factors were not enough to cover the decrease in federal spending. The article states that consumer saving had decreased and created the increase in consumption, government cut defense spending, and investments stalled as inventory stocks up. This is just the initial number until more information is gathered about the economy. Article: The US economy grew a disappointing rate of 2.2 per cent in the first quarter of 2012 as inventories piled up and the federal government cut spending. The annualised growth rate for gross domestic product came in below market expectations of 2.7 per cent and compares with 3 per cent growth in the fourth quarter of last year. More The weak performance did not, however, break a pattern of steady if mediocre expansion in the US, as consumption and investment grow too slowly to make up for cuts in federal spending. “The US economy remains a bright light in the global economy, although the light is hardly blinding and also showing some signs of fading,” said Chris Williamson, chief economist at Markit in London. Consumption was robust, growing at an annualised pace of 2.9 per cent and adding 2 percentage points to the growth rate. Real disposable income rose by only 0.4 per cent, however, suggesting consumers are saving less money. The savings rate fell to 3.9 per cent from 4.5 per cent in the previous quarter. “Undoubtedly the brightest spot in this report was the resurgence in consumer spending,” said Beata Caranci, deputy chief economist at TD Bank, but she warned that “we don’t expect to see a repeat performance in the strength of spending” in the second quarter. Investment would also have been almost flat if not for an inventory build-up that added 0.6 percentage points to growth. Cutbacks to federal spending, especially defence, subtracted 0.6 percentage points from the total. The first estimate of GDP must be treated with caution because crucial information – such as customs documents for March – is not ready. The number is often revised once more precise data arrives. “The latest report continues a pattern of moderate growth in the private sector components of GDP and contraction of the government components of GDP,” said Alan Krueger, chairman of the president’s Council of Economic Advisers. Republicans seized on the weak business investment. “This is the first decline in fixed business investment since the fourth quarter of 2009,” said representative Kevin Brady, vice-chair of the joint economic committee of Congress. “We need to get government out of the way and let the free market create jobs and opportunity for all Americans.” Final sales to domestic purchasers, a crucial measure of underlying demand in the economy, rose at a pace of only 1.6 per cent. That is slower than the economy’s long-run trend rate and the figures do little to resolve a divergence between weak demand and stronger job creation that has puzzled the US Federal Reserve. Many economists expected a weak first quarter after large inventories accumulated at the end of last year, but unseasonably warm weather encouraged construction activity in northern states and lured consumers out to the shops.