US Economy
US economic growth plunged in Q1 2015
By Michael Hennigan, Finfacts founder and editor
Apr 29, 2015 - 3:24 PM

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US economic growth plunged in Q1 2015 as businesses cut investment, exports plunged and consumers showed signs of caution, marking a return to the bumpy growth that has characterised the nearly six-year economic expansion.

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 0.2% in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2%.

In the first quarter, the dollar strengthened against major currencies, imports and exports were delayed because of labour disputes in key ports, energy prices declined, and several regions experienced severe weather.

First-quarter GDP highlights: The following contributed to the increase in real GDP:

  • Consumer spending increased, mainly on household services;
  • Inventory investment increased, notably in the nondurable-goods manufacturing industry.

These positive contributions to real GDP growth were largely offset by the following:

  • The trade deficit widened in the first quarter, reflecting a decline in goods exports:
  • Business investment declined, notably in mining exploration, shafts, and wells;
  • State and local government spending declined.

Personal income and personal saving: Real disposable personal income (DPI)—personal income adjusted for inflation and taxes—increased 6.2% in the first quarter, compared with 3.6% in the fourth quarter of 2014. Personal saving as a percentage of current-dollar DPI was 5.5%, compared with 4.6%.

First-quarter prices: Prices of goods and services bought by US residents decreased 1.5% in the first quarter, after decreasing 0.1% in the fourth quarter  of 2014. The first-quarter decline was the largest since the first quarter of 2009. Energy prices declined more than in the fourth quarter. Food prices also fell. Excluding food and energy, prices increased 0.3% in the first quarter after increasing 0.7% in the fourth quarter.

Paul Ashworth of Capital Economics commented: “The US economy all but stagnated in the first quarter, as lower energy prices triggered a big drop in mining investment, but did little to boost consumer spending because of the impact of the unseasonably cold winter in the Northeast. The 0.2% annualized gain will raise fears that the recovery is somehow coming off the rails but, just like last year, we anticipate a marked acceleration in growth over the remaining three quarters of this year. Over the past 12 months the economy has expanded by 3% and we would expect it to continue growing at around that pace this year too.”

Josh Bivens of the Economic Policy Institute commented: “Most of this deceleration is likely transitory — due in part to particularly bad weather in the first quarter. Growth in the rest of 2015 will most likely be faster than previously projected, as the economy bounces back from this weak start to the year. Yet data on GDP in recent years confirms that the U.S. economy has not reached escape velocity — growth rates have not broken past the 2%-2.5% pace that normally is associated with rapid declines in economic slack. Because growth has been steady for years, it might be tempting for some policy makers to shrug their shoulders and declare that this is the ‘new normal’ and the best we can do. The economic evidence clearly suggests otherwise — this economy still needs active measures to boost demand to achieve a full recovery. At a minimum, this means the Federal Reserve should put off interest rate increases for the rest of 2015.”

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