GDP growth in 1st quarter restrained by government cuts

From the Bureau of Economic Analysis:

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 (see the box on page 3). The
“second” estimate for the first quarter, based on more complete data, will be released on May 31, 2012.

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.

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.

This advance estimate is subject to significant revisions in the future — a full percentage point up or down is entirely likely.

This is slightly below most estimates and somewhat disappointing — the U.S. economy will need faster growth to recoup all the ground lost in the 2007-2009 recession.

Without the drag on GDP from government cuts, the rate would have been a much more respectable 2.8%. The federal government alone made a -.46% contribution to this estimate, almost entirely from military spending.

Private residential investment contributed .4%. Even with new construction subdued still, the fact that it’s now making a positive contribution to GDP is critically important for sustaining the recovery.

The biggest concern I have about this: Did the warm winter months actually boost economic activity, so the seasonal adjustment is actually giving us data that overstates the already-slow pace of recovery?

A graph from Calculated Risk: