GDP Growth Revised Downward, Leading to Employment Concerns

The Commerce Department revised the nation's first-quarter GDP growth rate down marginally on Thursday, from a 3.2% to a 3% increase, and that was more than mildly disappointing: The weaker numbers are causing concern that the U.S. growth rate in 2010 won't be strong enough to substantially lower the high unemployment rate.

The initial estimate for first-quarter GDP was released a month ago, and most economists had expected this month's revision to be upward, to about 3.5%. Instead, smaller increases in consumer spending and business investment were primarily responsible for the downward revision. The economy grew 2.2% and 5.6% in the third and fourth quarters of 2009, respectively. For all of 2009, GDP totaled $14.26 trillion, down 1.3% from 2008.

Overall in the first quarter, increases in consumer spending, inventory rebuilding, exports, and non-residential fixed investment were partly offset by declines in state and local government spending, and residential fixed investment, accounting for the 3.0% gain. In current dollars (not adjusted for inflation), U.S. GDP rose 4.1% in the first quarter or by $147.6 billion to an annual rate of $14.60 trillion.

Wanted: Job-Creating Growth Engines

The first quarter gain means that in the past 12 months U.S. GDP is up 2.5%. But the key question remains: Is the U.S. economy growing at a strong enough pace to reduce unemployment by at least 200,000 jobs per month?

At this juncture, GDP growth appears to be too slow, and other revised first-quarter data did little to instill more confidence in analysts about the possibility of a robust expansion. In the first quarter, consumer spending rose 3.5%, down from the initial 3.6% estimate released last month. Business investment rose 13.1%, down from the previously released 14.0% increase.

With consumer spending and business investment not growing fast enough, that leaves exports to pump up GDP and add jobs. However, the Commerce Department said that in the first quarter, international trade subtracted 0.66 percentage points from GDP, as import growth outpaced export growth. By contrast, in the fourth quarter of 2009, international trade added 0.27 percentage points to U.S. GDP.

This revised first-quarter GDP report is unlikely to prompt most economists and analysts to change their view of the U.S. economy's expansion. However, the report is likely to raise questions about job growth, and also to spark debate regarding what actions might be taken to increase GDP growth.