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This lesson focuses on the April 28, 2011, first (advance) estimate of U.S. real gross domestic product (real GDP) growth for the first quarter (Q1) of 2011, as reported by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. The lesson will also raise questions about the impact of the current level of growth on the U.S. economy and individuals.

KEY CONCEPTS

Business Cycles, Economic Growth, Gross Domestic Product (GDP), Macroeconomic Indicators, Real Gross Domestic Product (GDP)

STUDENTS WILL

  • Determine the current and historical growth of U.S. real gross domestic product.
  • Identify the components of the measurement of the nation's gross domestic product.
  • Assess the relationship of real GDP data, the indexes of economic indicators, and business cycles.
  • Speculate about the nature and impact of current economic conditions and implications for the future.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

Each month, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, releases an estimate of the level and growth of U.S. gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States.

This lesson focuses on the BEA's first (advance) estimate of real GDP growth released on April 28, 2011, for the first quarter of 2011 (January-March.)  Understanding the level and rate of growth of the economy's output (GDP) helps to better understand growth, employment trends, the health of the business sector, and consumer well-being. 

Note: During the second semester of the 2010-2011 school year (January-May), EconEdLink will publish four Focus on Economic Data lessons on "U.S. Real GDP Growth."  Real GDP data is announced three times for each fiscal quarter. For Q1 2011, the first estimate was made in April, the second estimate is made in May, and the third estimate for Q1 is made in June.  This is the first estimate for the period of January-March, 2011, Q1.

GDP data reports lag the reporting period - the fiscal quarter. The current estimate is the first for Q1 (January-March, 2011).  Each of the three estimates for a quarter will include more comprehensive data and may modify the growth rate reported earlier.

[Teacher Note: Each Real GDP lesson will provide the most up-to-date data and focus on some specific topics or issues related to GDP.   Second semester 2010-2011 schedule:

  • January 2011 (first estimate for Q4 2010): How to read the data, real vs. nominal, and how the data is collected
  • February 2011 (second estimate for Q4 2009): Factors influencing the change in GDP, revisions, and seasonal adjustment
  • March 2011 (third estimate for Q4 2009): Business cycles and indicators of future growth (decline)
  • April 2011 (first estimate for Q1 2011): More details of GDP growth and U.S. regional comparisons. THIS LESSON ]

MATERIALS

  • Measuring the Economy: A Primer on GDP and the National Income and Product Accounts: This BEA article introduces new users to the basics of U.S. national income and product accounts.
    www.bea.gov/national/pdf/nipa_primer.pdf
  • Global Business Cycle Indicators: This site produced by The Conference Board, provides business cycle indicators for 11 countries around the world.
    www.conference-board.org/data/bci.cfm
  • NBER determination of the December 2008 Peak in Economic Activity: This is the NBER recession announcement made on December 1, 2008. 
    www.nber.org/cycles/dec2008.html

Key Economic Indicators

as of April 28, 2011

Inflation

On a seasonally adjusted basis, the CPI-U increased 0.5 percent in March, the same increase as in February. The index for all items less food and energy rose 0.1 percent in March after increasing 0.2 percent in February.

Employment and Unemployment

Nonfarm payroll employment increased by 216,000 in March, and the unemployment rate was little changed at 8.8 percent. Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.

Real GDP

U.S. real GDP increased at an annual rate of 1.8 percent in the first quarter of 2011 (that is, from the fourth quarter to the first quarter) according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.

Federal Reserve

The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

PROCESS

The U.S. economy grew in the first quarter of 2011, but not quite at the rate of growth during the last half of 2010.  Is this good news or bad news?   Take a look at the BEA's first estimate of the performance of the U.S. economy in early 2011 and decide for yourself.

Gross Domestic Product: First Quarter 2011 (Advance Estimate)
U.S. Bureau of Economic Analysis
Released April 28, 2011

"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the first quarter of 2011 (that is, from the fourth quarter to the first quarter) according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter (2010), real GDP increased 3.1 percent."

"The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The "second" estimate for the first quarter, based on more complete data, will be released on May 26, 2011."  Remember, the BEA issues three real GDP reports each quarter, each based on new and more complete data.  This is the first estimate for Q1 of 2011.  The average revision from the advance estimate to the third estimate (two months later), has been 0.6 percentage point.

Real GDP growth can also vary greatly from quarter to quarter during a year.  In 2010, for instance, the economy grew at a 3.7 percent rate in Q1 and just 1.7 percent in Q2.  The growth rate grew to 2.6 percent in Q3 and 3.1 percent in Q4.  For the full year of 2010, real GDP grew at an annual rate of 2.9 percent.

[Teacher Note: Point out to students the problem of interpreting a big increase or decrease of GDP growth in one quarter as a "trend."   2010 is a good example of one quarter's growth being much slower than the other quarters.]

Figure 1, below, shows the U.S. quarterly real GDP growth rates from 1999 through Q1 of 2011.   Note the real GDP negative growth in 2008 and the first half of 2009.   This is the period that looks like the traditional definition of a recession.  The Bureau of Economic Research identified the end of the recession as June, 2009, but did not do so until September 2010. 

[Note to teachers:  Students should be able to determine the recessionary periods during this time span.  See the NBER "Business Cycle Dating Committee" announcement for the "official dates of recessions" on their Official Dates of Recessions and Recoveries page.]

GDP Figure 1

Real GDP Growth in Q1 2011

 Where did the Q1 growth come from?  The BEA reported, "The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased." 

Growth in Q1 2011 was slower than growth in Q4 2010.  Why?  “The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by a sharp upturn in private inventory investment," the BEA reported.

Key Industry Groups and Sectors in Q1 2011

  • Motor Vehicles:  "Motor vehicle output added 1.40 percentage points to the first-quarter change in real GDP after subtracting 0.27 percentage point from the fourth-quarter change.”   
  • Computers:  "Final sales of computers added 0.12 percentage point to the first-quarter change in real GDP after adding 0.35 percentage point to the fourth- quarter change.
  • Personal Consumption Expenditures:  Real personal consumption expenditures increased 2.7 percent in the first quarter, compared with an increase of 4.0 percent in the fourth. Durable goods increased 10.6 percent, compared with an increase of 21.1 percent. Nondurable goods increased 2.1 percent, compared with an increase of 4.1 percent. Services increased 1.7 percent, compared with an increase of 1.5 percent.”
  •  Nonresidential Fixed Investment:  “Real nonresidential fixed investment increased 1.8 percent in the first quarter, compared with an increase of 7.7 percent in the fourth. Nonresidential structures decreased 21.7 percent, in contrast to an increase of 7.6 percent. Equipment and software increased 11.6 percent, compared with an increase of 7.7 percent. Real residential fixed investment decreased 4.1 percent, in contrast to an increase of 3.3 percent. real fixed investment decreased 10.9 percent, in contrast to an increase of 3.8 percent.”
  • Imports and Exports:  “Real exports of goods and services increased 4.9 percent in the first quarter, compared with an increase of 8.6 percent in the fourth. Real imports of goods and services increased 4.4 percent, in contrast to a decrease of 12.6 percent.
  • Government Expenditures:  “Real federal government consumption expenditures and gross investment decreased 7.9 percent in the first quarter, compared with a decrease of 0.3 percent in the fourth. National defense decreased 11.7 percent, compared with a decrease of 2.2 percent. Nondefense increased 0.1 percent, compared with an increase of 3.7 percent. Real state and local government consumption expenditures and gross investment decreased 3.3 percent, compared with a decrease of 2.6 percent
  • Inventories:  “The change in real private inventories added 0.93 percentage point to the first-quarter change in real GDP after subtracting 3.42 percentage points from the fourth-quarter change. Private businesses increased inventories $43.8 billion in the first quarter, following increases of $16.2 billion in the fourth quarter and $121.4 billion in the third.”

[Note to teachers:  Students can look at the detailed GDP Data by Industries to identify how well the key industries in their city or region are doing.

Ask your students why they think the BEA chooses to single out automobile sales and computer sales data.  Why are these two products so important to understanding GDP growth?   Automoblie and computer sales are large, normally discretionary purchases.]

What is the U.S. Current-dollar GDP?

$15,006,400,000,000

"Current-dollar GDP Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $135.0 billion, in the first quarter to a level of $15,006.4 billion. In the fourth quarter, current-dollar GDP increased 3.5 percent, or $126.3 billion."

Current dollar estimates are expressed in current prices. Chained dollar (real) estimates are adjusted for inflation using the price index for gross domestic purchases. The BEA press release explains, "The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.3 percent in the third quarter, 0.1 percentage point less than the second estimate; this index increased 0.5 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 0.3 percent in the third quarter, compared with an increase of 0.8 percent in the second.” Much of the price index for GDP change in Q1 was energy prices.

 

[Note to teachers:  Make sure your students are clear about the difference between the nominal (current) dollar GDP and the chained (real) GDP measurements.

 

Ask your students what the U.S. per capita GDP is.   Divide the GDP by the population.  $15,006,400,000,000 divided by 312,000,000 = $48,100.]

 [NOTE:  You can find the U.S. Current Dollar and Real GDP  figures since 1929 on this BEA table.]

U.S.  Regional and State Real GDP Data

Every six months, the BEA releases annual GDP data for eight U.S. regions and the fifty states.  The most recent data was released in November, 2010 (revised in December.)  The second release for each calendar year reflects more comprehensive and updated data for that year.  The current regional and state GDP release is for the year 2009, which includes the last six months of the recession.

"Real GDP declined in 38 states in 2009, led by national downturns in durable goods manufacturing and construction, according to new statistics that breakdown GDP by state released today by the U.S. Bureau of Economic Analysis. U.S. real GDP by state declined 2.1 percent in 2009 after increasing 0.1 percent in 2008."

"Real GDP declined in all eight BEA regions in 2009. The sharpest downturn was in the Great Lakes region where the decline in real GDP accelerated to 3.4 percent in 2009 from a decline of 0.6 percent in 2008. Real GDP declined in 2009 in all five states of the Great Lakes region, led by Michigan with a decline of 5.2 percent."

GDP and Per Capita GDP by Region, 2009

Figure 2, below, lists the gross domestic product of the eight U.S. regions and their regional per capita GDP.  Note the significant differences between the regions.

Figure 2:  U.S. Regional GDP and Regional Per Capita GDP
2009
Region Regional GDP
(billions)
Per Capita GDP
U.S. Total $12.90 $42,031
Northeast $0.71 $48,964
Mideast $2.32 $48,405
Great Lakes $1.81 $38,856
Plains $0.85 $41,649
Southeast $2.85 $36,719
Southwest $1.50 $40,408
Rocky Mountains $0.45 $41,361
Far West $2.42 $46,511


"Durable–goods manufacturing and construction led the decline in real U.S. GDP by state in 2009. One of these two industries was the leading contributor to the decline in 34 states. The states hardest hit by the decline in durable–goods manufacturing were Michigan, Indiana, Ohio, Wisconsin, Tennessee, and Kentucky. The decline in construction subtracted more than one percentage point from growth in Nevada, Arizona, and Idaho, and nearly subtracted a point in Florida. In addition to the decline in construction, declines in accommodation and food services, and real estate, rental, and leasing, caused Nevada to have the largest downturn in 2009 (–6.4 percent)."

"In contrast to the nation and most states, several states experienced positive real GDP growth in 2009 due to real growth in agriculture, forestry, fishing, and hunting and in mining resulting from sharp declines in prices for petroleum, natural gas, and other mining products in 2009. Oklahoma had the fastest growth in real GDP in 2009 (6.6 percent). The largest contributor to growth in Oklahoma was mining. Mining was also the leading contributor to growth in Wyoming and Louisiana. Agriculture, forestry, fishing, and hunting was the leading contributor to growth in North Dakota and Nebraska, and was the second largest contributor to growth in South Dakota."

Per Capita Real GDP by State in 2009

"Delaware’s per capita real GDP of $62,080 was the highest in the nation, 48 percent above the national average. Mississippi’s per capita real GDP of $29,634 was the lowest in the nation, 29 percent below the national average. Nine of the 10 states in both the top and bottom quintile remained the same in 2008 and 2009. Washington replaced Colorado in the highest quintile in 2009, while Michigan replaced Maine in the lowest quintile in 2009."

Figure 3, below, illustrates the real GDP growth rates of the 50 states and the 8 regions in 2009.  Note the areas of relatively high (blue) and relatively low (beige) growth rates.

Figure 3 GDP

 Figure 3

Link: www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm

[Teacher Note:  Students can compare their state or region to other states and regions.  What factors may have influenced the pace or growth in their state or region?  What industries are growing or declining in their state or region?]

ASSESSMENT ACTIVITY


Short Answer Essay Question:

1. If gross domestic product increases by 10 percent over a year, are we better off? Why or why not?

[Possible Answer: Perhaps we are better off. Maybe not. The answer depends upon what is happening to prices and what is happening to population. If prices and population together are rising by more than 10 percent per year, than we, on average, are worse off. We have fewer goods and services per person. If the nation's real per capita GDP increases, we may be "better off."]
 

CONCLUSION

U.S. real gross domestic product increased at an annual rate of 1.8 percent in the first quarter of 2011. Real GDP had increased by  a total of 2.9 percent in 2010, and had increased at an annualized rate over 3 percent in Q4 of 2010.  In addition, the U.S. unemployment rate remains very high, at 8.8 percent in March, 2011.  U.S. economic growth has slowed.  Is the recovery in jeopardy?

As evidenced by the rates of GDP growth in the various states (figure 3), the pace of economic recovery varies greatly from one area to another.  Several states - especially in the Far West, Great Lakes and Southeast regions - continued to lose GDP in 2009.  Several other regions - especially some Rocky Mountain and Plains states - grew at robust rates.

Keep an eye on the later estimates of real GDP growth for 2011 Q1 (released in May and June) for a more accurate picture of U.S. economic growth and recovery.

EXTENSION ACTIVITY

Recent GDP Data in Detail
 
Table 2 of the BEA’s April 28, 2011, real GDP estimates is a detailed breakdown of the data by sector and specific types of goods and services, investments, and trade, from 2007 through Q1 2011.
 
Go to Table 2 at: www.bea.gov/newsreleases/national/gdp/2011/pdf/gdp1q11_adv.pdf
 
Take a good look at the data. What are the areas of growth and decline? Was the data (growth rates) consistent throughout the period of time? Summarize your interpretation of the data in Table 2.
 
Go to the BEA  April 27, 2011, Table 7, "Percent Change From Preceding Period in Real Gross Domestic Product ." You can use this page to look at changes in GDP over any selected period of time.   Try looking at the changes over the years sine you were born.
 
www.bea.gov/newsreleases/national/gdp/2011/pdf/gdp1q11_adv.pdf  
 
There are also links to other NIPA data pages.
 
[Teacher note: You can assign groups of students different time periods of data to read, analyze, and summarize for the class.]