The World Economy - 3/5/2010

US Real GDP Growth Moderated In The 1Q But The Recovery Is Becoming More Sustainable

The US real GDP growth moderated to an annualised rate of 3.2% in the 1Q, from +5.6% in the 4Q of last year. This was the third straight quarter of growth, albeit at a more moderate pace, suggesting that the US economic recovery is more entrenched. Although growth was weaker than the previous quarter, the composition of growth is a lot more encouraging, as it was driven by a pick-up in consumer spending rather
than inventory rebuilding. Consumer spending rebounded to increase by 3.6% in the 1Q, after slowing down to +1.6% in the 4Q. This indicates that a recovery in the economy, which started from the government stimulus and inventory rebuilding, has now spread to consumer spending, making the recovery more sustainable going forward. The pick-up in consumer spending, however, was offset partially by a slowdown in gross private investment, which eased to 14.8% in the 1Q, from +46.1% in the 4Q. This was attributed to a slower growth in business spending on equipment & software (+13.4% in the 1Q versus +19.0% in the 4Q) and a decline in residential investment (-10.9% in the 1Q versus +3.8% in the 4Q). A slowdown in inventory rebuilding during the quarter worsened the situation. At the same time, exports slowed down at a faster pace than that of imports, resulted in net exports subtracting 0.6 percentage point from GDP growth in the 1Q, compared with a contribution of 0.3 percentage point in the 4Q. Similarly, government spending contracted by a larger magnitude of 1.8% in the 1Q, compared with -1.3% in the 4Q. Meanwhile, personal consumption expenditure (PCE) price index moderated to 1.5% yoy in the 1Q, from +2.5% in the 4Q and +1.6% in the 3Q, pointing to easing price pressure. Similarly, the core PCE price index slowed down to 0.6% in the 1Q, from +1.8% in the 4Q and a high of +2.0% in the 2Q of last year.

The World Economy - 3/5/2010