U.S. GDP Growth Slows

U.S. Commerce Department calculations estimate that first quarter U.S. gross domestic product (GDP) growth slowed to 1.8%.  By comparison, fourth quarter GDP growth was 3.1%.

Analysis: Clearly this is a disappointing result.  However, let’s review some of what happened in the first quarter and then compare that to burgeoning consumer confidence.

2011’s first three months was rocked by: continued slow improvement in the unemployment rate, the Egyptian crisis, the Middle Eastern crisis, the Japanese earthquake and tsunami, the Japanese nuclear crisis, bad weather in the northeast, a budgetary struggle in Washington D.C. that threatened to shut down the government, a huge increase in fuel prices, and a potential NFL lockout.

Regarding the battle between football owners and players, don’t laugh about this, people in the U.S. are depressed by the idea that they won’t be able to indulge in the favorite autumn pastime: football watching.

That there was still nearly 2% economic growth is noteworthy.  One year ago this set of circumstances would have been enough to derail the fragile U.S. recovery in GDP.  However, this year, it did not.  I consider the first quarter to have contained a near perfect storm of intense, unnerving news.

What’s more, consumer confidence is still increasing, and ultimately that is what will drive the U.S. economy.  I have said before that consumer confidence is a lagging economic indicator.  That buyers in the United States remain confident in the face of adverse news means that they are continuing to spend.

My expectation is that first quarter GDP will be revised upward ultimately, as this is just the first pass at a data piece that is usually altered for years going forward.

Importance grade: 10; GDP is the grand daddy economic statistic.  It is the scale that weighs the quality of economic health.  That GDP growth slowed deserves our continued attention.  If GDP growth should be just as slow in the second quarter, then there will be trouble.  If not, then we can all breathe a sigh of relief.

Jason