US GDP declines in Q1

After first reporting a dismal first quarter GDP growth rate of +.2 percent in April, the Commerce Department issued a revised, second estimate for the U.S. economy’s performance from January to March of -0.7 percent.

A larger trade deficit, smaller business inventories, and less consumer spending than initially predicted, all contributed to the downward adjustment of nearly a full percentage point.

Macroeconomic experts are predicting between a 2–2.5 percent gain for GDP growth in Q2, which would still make for the worst first-half performance by the U.S. economy since 2011.

Economists have pointed to a stronger U.S. dollar, which weakens export sales, and a fall in gas prices leading to a reduction in energy exploration investment by 48 percent, as the main culprits of a slowing U.S. economy.

Consumer spending, which accounts for two-thirds of the overall economy, also grew by only 1.8 percent in Q1, largely on account of the unusually cold and snowy weather conditions for much of the northern U.S.

Despite the bad numbers, the summer travel season could cause a big spike in growth for the main sector of the U.S. economy in 2015, as gas prices are lower by $1 per gallon on average, $2.74, compared to this time last year.

Year-to-date, consumer spending hasn’t realized the benefits of cheaper travel costs.

 

[AP] [Photo courtesy REUTERS/Sean Gardner]