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 27, 2012, for the first quarter of 2012 (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.
- 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.
The U.S. economy grew in the first quarter of 2012, but not quite at the rate of growth during the last quarter of 2011. 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 2012 and decide for yourself.
Note: Unless otherwise cited, all quoted materials in this lesson are directly from the April 27, 2012, Bureau of Economic Analysis news release of U.S. real gross domestic product.
Gross Domestic Product: First Quarter 2012 (Advance Estimate)
U.S. Bureau of Economic Analysis
Released April 27, 2012
"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 2.2 percent in the first quarter of 2012 (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 of 2011, real GDP increased 3.0 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 31, 2012."
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 2012. The average revision from the advance estimate to the third estimate (two months later), has been about 0.6 percentage point.
Real GDP growth can also vary greatly from quarter to quarter during a year. In 2011, for instance, the economy grew at just a 0.4 percent rate in Q1 and increased to 1.3 percent in Q2 and 1.8 percent in Q3. The real GDP growth rate grew to 3.0 percent in Q4. The growth rate increase in each successive quarter over the year. The annualized real GDP growth rate in 2011 was just 1.7 percent.
Students: Is the Q1 2012 growth rate good or bad in this context? We may not know for sure until we see the real GDP growth rate for the next couple of quarters.
Students: be sure not to interpret a big increase or decrease of GDP growth in one quarter as a "trend." Can you see a trend in the U.S. real GDP growth for recent 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.
Students: Can you 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.
Real GDP Growth in Q1 2012
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), exports, private inventory investment, and residential fixed investment that were partly offset by negative contributions from federal government spending, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased."
Growth in Q1 2012 was slower than growth in Q4 2011. Why? The BEA noted, “The deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment that were partly offset by accelerations in PCE and in exports.the BEA reported."
Key Industry Groups and Sectors in Q4 2012
- Motor Vehicle Sales: "Motor vehicle output added 1.12 percentage points to the first-quarter change in real GDP after adding 0.47 percentage point to the fourth-quarter change."
- Computer Sales: "Final sales of computers added 0.05 percentage point to the first-quarter change in real GDP after adding 0.12 percentage point to the fourth- quarter change."
- Personal Consumption Expenditures: "Real personal consumption expenditures increased 2.9 percent in the first quarter, compared with an increase of 2.1 percent in the fourth. Durable goods increased 15.3 percent, compared with an increase of 16.1 percent. Nondurable goods increased 2.1 percent, compared with an increase of 0.8 percent. Services increased 1.2 percent, compared with an increase of 0.4 percent."
- Nonresidential Fixed Investment: "Real nonresidential fixed investment decreased 2.1 percent in the first quarter, in contrast to an increase of 5.2 percent in the fourth. Nonresidential structures decreased 12.0 percent, compared with a decrease of 0.9 percent. Equipment and software increased 1.7 percent, compared with an increase of 7.5 percent. Real residential fixed investment increased 19.1 percent, compared with an increase of 11.6 percent."
- Imports and Exports: "Real exports of goods and services increased 5.4 percent in the first quarter, compared with an increase of 2.7 percent in the fourth. Real imports of goods and services increased 4.3 percent, compared with an increase of 3.7 percent."
- Government Expenditures: "Real federal government consumption expenditures and gross investment decreased 5.6 percent in the first quarter, compared with a decrease of 6.9 percent in the fourth. National defense decreased 8.1 percent, compared with a decrease of 12.1 percent. Nondefense decreased 0.6 percent, in contrast to an increase of 4.5 percent. Real state and local government consumption expenditures and gross investment decreased 1.2 percent, compared with a decrease of 2.2 percent."
- Inventories: "The change in real private inventories added 0.59 percentage point to the first-quarter change in real GDP after adding 1.81 percentage points to the fourth-quarter change. Private businesses increased inventories $69.5 billion in the first quarter, following an increase of $52.2 billion in the fourth quarter and a decrease of $2.0 billion in the third."
Students: Look at the detailed GDP Data by Industries to identify how well the key industries in your city or region are doing.]
Students why do you think the BEA chooses to single out automobile sales and computer sales data? Why are these two products so important to understanding GDP growth?
What was the U.S. current-dollar GDP at the end of Q1 2012?
"Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.8 percent, or $142.4 billion, in the first quarter to a level of $15,461.8 billion. In the fourth quarter, current-dollar GDP also increased 3.8 percent, or $143.3 billion."
Current dollar estimates are expressed in today's 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 2.4 percent in the first quarter, compared with an increase of 1.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the first quarter, compared with an increase of 1.2 percent in the fourth.”
Students: Are you clear about the difference between the nominal (current) dollar GDP and the chained (real) GDP measurements?
Students: What is the U.S. per capita GDP?. Divide the current dollar GDP by the population. $15,461,800,000,000 divided by 312,000,000.
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
The BEA releases annual GDP data for eight U.S. regions, the fifty states, and metropolitan areas. The most recent state and regional data was released June 7, 2011. The current regional and state GDP release is through the year 2010.
“Real gross domestic product (GDP) increased in 48 states and the District of Columbia in 2010, according to new statistics released today by the U.S. Bureau of Economic Analysis that breakdown GDP by state.1 Durable–goods manufacturing, retail trade, and finance and insurance were leading contributors to the upturn in U.S. economic growth. U.S. real GDP by state grew 2.6 percent in 2010 after declining 2.5 percent in 2009.”
“The resurgence in real GDP by state in 2010 was widespread, with all eight BEA regions growing. The Mideast and New England regions grew the fastest, led by finance and insurance and durable–goods manufacturing, respectively”.
Figure 2, below shows the map of the eight U.S. regions, with the percent change in real GDP by state. Note the states with the highest growth rates (dark blue) and the states with the slowest growth rates (gold). Within each region, the state growth rates vary.
Source: BEA News Release, “Economic Recovery Widespread Across States,” June 7, 2011. http://www.bea.gov/newsreleases/regional/gdp_state/2011/pdf/gsp0611.pdf
GDP and GDP Growth Rates by Region, 2010
Figure 3, below, lists the gross domestic product of the U.S. regions and their regional real GDP growth rates in 2010. Note the significant differences between the regions, due to their size and population.
Source: BEA News Release, “Economic Recovery Widespread Across States,” Table 3, June 7, 2011. http://www.bea.gov/newsreleases/regional/gdp_state/2011/pdf/gsp0611.pdf
The BEA commented on the 2010 GDP growth rates among regions. “The resurgence in real GDP by state in 2010 was widespread, with all eight BEA regions growing. The Mideast and New England regions grew the fastest, led by finance and insurance and durable–goods manufacturing, respectively.”
Students: Compare your state or region to other states and regions. What factors may have influenced the pace or growth in your state or region? What industries are growing or declining in your state or region? Any ideas why?
U.S. real gross domestic product increased at an annual rate of 2.2 percent in the first quarter of 2012. Real GDP had increased by a 3.0 percent in the last quarter of 2011, after steadily rising through the year. In addition, the U.S. unemployment rate remains historically, over 8 percent U.S. economic growth has slowed, again. 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, but all of the U.S. regions grew in 2010. The Mideast and New England states led the U.S. in regional GDP growth.
Keep an eye on the later estimates of real GDP growth for Q1 2012 Q1 (released near the ends of in May and June) for a more accurate picture of U.S. economic growth and recovery.
Short Answer Essay Question:
1. If gross domestic product increases by 10 percent over a year, are we better off? Why or why not?