Meet the Author

David E. Altig |

Vice President

David Altig was formerly vice president and associate director of research at the Federal Reserve Bank of Cleveland. Dr. Altig’s research is primarily focused on monetary and fiscal policy issues.

Meet the Author

Brent Meyer |

Economist

Brent Meyer

Brent Meyer is a former economist of the Federal Reserve Bank of Cleveland.

05.01.07

Economic Trends

Real GDP Growth

David E. Altig and Brent Meyer

Real GDP grew 1.3 percent (annualized) in the first quarter of 2007, according to the advance release by the Bureau of Economic Analysis. This was a substantial decline from last quarter’s 2.5 percent (annualized) growth, and the slowest pace of expansion in the U.S. economy since the first quarter of 2003.

International trade was a big part of the story, as exports fell considerably, from 10.6 percent (annualized) growth in the fourth quarter of 2006 to –1.2 percent (annualized) in the first three months of this year. (That decline represents the weakest quarterly growth rate since the second quarter of 2003). Import growth compounded the issue, increasing at an annual rate of 2.3 percent after posting a decrease of 2.6 percent last quarter.

Real personal consumption expenditures (PCE) growth decelerated slightly from 4.2 percent (annualized) last quarter to 3.8 percent, as growth in nondurables fell 3 percentage points (from 5.9 percent to 2.9 percent). In contrast, PCE durables increased from 4.4 percent (annualized) last quarter to 7.3 percent.

Real GDP and Components, 2007:Q1 (advance estimate)

Annualized percent change:
      Change, billions of 2000 dollars Current quarter

Over same period 1 year ago

Real GDP

36.1

1.3

2.1

Personal consumption

77.7

3.8

3.4

Durables

21.6

7.3

4.5

Nondurables

17.2

2.9

2.9

Services

41.6

3.7

3.4

Business fixed investment

6.5

2.0

3.2

Equipment

4.9

1.9

0.8

Structures

1.5

2.1

9.4

Residential investment

-24.6

-17.0

-16.7

Government spending

4.7

0.9

1.7

National defense

-8.5

-6.6

0.4

Net exports

-15.2

Exports

-4.2

-1.2

5.5

Imports

10.9

2.3

1.6

Change in business inventories

-7.6

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

 

While up slightly from last month, residential investment continues to contract. In contrast, business fixed investment posted growth 15 out of the last 16 months. That includes the first quarter of this year, though the pace of nonresidential investment was sluggish.

While a deceleration in GDP growth was expected, consensus expectations from Moody’s.com were for GDP to grow at an annual rate of 1.9 percent. The Blue Chip panel of economists also overshot the advance estimate, forecasting first-quarter real GDP growth at 2.1 percent in their April 10 report. Looking forward, the Blue Chip panel remains optimistic: The consensus view as of April 10 had GDP growth returning to 3 percent by the end of the year.