Subpar U.S. Economic Growth Over the First Half of the Year
August 26, 2011    Disclosures    POSTED IN  Economy

Today the U.S. Bureau of Economic Analysis stated that the U.S. economy grew at a 1.0% annualized rate. This rate is a revision from the first estimate of 1.3% released last month. For perspective, an annualized growth rate near 3% would be indicitive of healthy economic growth.

Comparing the most recent growth rates to the last two and a half years is useful in understanding where growth has come from since the depths of the last recession. As the economy began to recover in late 2009, most of the major components of the economy contributed positively to growth. As a result real gross domestic product (GDP) grew by over 3.8% for three consecutive quarters. By the second half of last year, however, the rate of growth slowed to the mid 2% range. During the first half of this year the economic growth rate declined dramatically. Over the first three months of this year the economy grew by only 0.4%. From April 1, 2011 to June, 30 2011 the economy expanded by a slightly better 1.0% annualized rate. Both growth rates are very low from a long term historical perspective.

The rate of growth of an economy can be broken into five major components; personal consumption, private domestic investment, imports, exports and government consumption & investment. During the second quarter of 2011 personal consumption added only 0.3%, gross private domestic investment contributed 0.78%, imports detracted from the growth rate by -0.33%, exports added 0.41% and the government negatively contributed -0.18%.

Personal consumption, after strong contributions for five consecutive quarters, contributed the lowest amount to GDP that the category has since early 2009.

Perhaps the most positive part of the second quarter figure was that gross private domestic investment contributed more than it did in the first quarter and was the main reason GDP did not come in under 1.0%.

It is quite possible that government consumption and investment will continue to detract from economic growth in the coming quarters as federal stimulus rolls off, so growth will have to come from the private sector if the economy is to grow at a stronger pace then the past two quarters.

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