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Economics for your Classroom from Ed Dolan’s Econ Blog US GDP Growth Stalls as the Fed Misses its Targets by a Wide Margin Posted April 30, 2014

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Economics for your Classroom from Ed Dolan’s Econ Blog US GDP Growth Stalls as the Fed Misses its Targets by a Wide Margin Posted April 30, 2014 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.


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April 30, 2014 Ed Dolan’s Econ Blog US GDP Growth Stalls in Q1 2014 The advance estimate from the Bureau of Economic Analysis released on April 30 showed that US real GDP grew at just a 0.1 percent annual rate in Q1 2014 That is a big decrease from 2.6 percent in Q4 and 4.1 percent in Q3 Harsh winter weather undoubtedly contributed to the downturn


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Phases of the Business Cycle According to standard business cycle terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak The recovery phase is the upward movement from the trough (low point) of the recession and continues until GDP again reaches its previous peak. Once GDP moves above its previous peak, the expansion phase begins. The latest data show that the expansion is continuing. Real GDP is now 6.3 percent above the previous peak April 30, 2014 Ed Dolan’s Econ Blog


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Sources of Growth by Sector The slowdown was broadly based. The contribution from consumption was positive but lower than the 2.22 percentage points in Q3 Investment, including fixed, inventory, and residential, was negative A decrease in expenditures of state and local government was only partly offset by an increase in Federal expenditures Exports, which had been a strong point of the recovery, also turned negative Contribution by sector to the .1% GDP growth in Q1 2014 Note: Imports are recorded in the national accounts with a negative sign, so the 0.24 percentage points shown here represent a decrease in imports April 30, 2014 Ed Dolan’s Econ Blog


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Export Growth Plunges Exports have played a leading role in GDP growth during much of the recovery Beginning in Q2 2012, the growth of exports slowed, but then recovered again in the last three quarters of 2013 In Q1 2014, exports took a dive, turning in by far their worst performance since the depths of the recession April 30, 2014 Ed Dolan’s Econ Blog


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State and Local Spending Turns Negative Again Decreasing government spending, has been a negative influence on GDP growth for most of the past 3 years In mid-2013, state and local government spending showed the first convincing growth for four years, more than offsetting the continued decrease in federal spending In Q1 2014, the situation reversed, with S&L spending making a negative contribution that more than offset a tiny increase in federal government spending April 30, 2014 Ed Dolan’s Econ Blog


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The Fed is Missing its Targets The Federal Reserve has set targets of 5.5 percent unemployment and 2 percent inflation, as measured by the index for personal consumption expenditures As this chart shows, unemployment has gradually decreased during the recovery, but inflation, at 1.4 percent in Q1, is still running well below its target The arrow shows the trend since 2010, which is clearly on track to miss the bullseye April 30, 2014 Ed Dolan’s Econ Blog


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Click here to learn more about Ed Dolan’s Econ texts or visit www.bvtpublishing.com For more slideshows, follow Ed Dolan’s Econ Blog Follow @DolanEcon on Twitter


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