U.S. Economy Down: First Quarter 2015 GDP Showing Decrease

U.S. GDPOn Friday, May 29, the Bureau of Economic Analysis released the second estimate for first-quarter gross domestic product (GDP) of 2015. (Source: Bureau of Economic Analysis, May 29, 2015.)

According to the report, U.S. GDP declined at an annual rate of 0.7% in the first quarter of 2015. The report last month, in its first estimate, suggested an increase of 0.2%. The downward revision was mainly due to more imports and less private inventory investment compared to the previous estimate.

Consumption, Investment, and Exports Down

Real personal consumption expenditures saw a slowdown in their growth, gaining only 1.8% in the first quarter. In the previous quarter, personal consumption grew 4.4%.

Investment is also struggling. Real nonresidential fixed investment declined 2.8% in the first quarter. In Q4 of 2014, it increased 4.7%.

Trade balance is pulling down GDP as well. Real exports dropped 7.6% in the first quarter, showing weakness in global demand. A strong U.S. dollar makes American-made products relatively more expensive. In the previous quarter, exports gained 4.5%.

Real imports increased 5.6%, almost half of the previous quarter’s 10.4% gain. This shows slowing down in U.S. domestic demand.

On the federal level, government expenditures and investment increased 0.1%, compared to a decrease of 7.3% in the fourth quarter of last year. State and local government consumption expenditure and investment decreased 1.8% in the first quarter.

Real private inventories increased, adding a positive 0.3% to changes in first quarter GDP. In fact, inventories have been piling up. March’s inventory-to-sales ratio was 1.36. The last time the ratio was this high was in July 2009, when the U.S. economy was still deep in recession. (Source: Federal Reserve Bank of St. Louis, last accessed May 29, 2015.)

The gross national product, which measures the output by U.S. labor and capital, decreased 1.4% in the first quarter, compared to the previous quarter’s 1.4% gain.

According to economists, the slowdown in the U.S. economy was in part due to a stronger U.S. dollar, the harsh weather conditions in the winter, labor disputes at the ports, and consumer caution.