This lesson focuses on the April 27, 2012, first (advance) estimate of U.S. real gross domestic product (real GDP) growth for the first quarter (Q1) of 2012, as reported by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. The lesson will also raise questions about the impact of the current level of growth on the U.S. economy and individuals.
- 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.
Current Key Economic Indicatorsas of April 4, 2015
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in February on a seasonally adjusted basis. Over the last 12 months, the all-items price index was unchanged. The energy index increased after several months of decline. Core inflation rose 0.2% in February, the same increase as in January.
The unemployment rate stayed at 5.5% in March, 2015, according to the latest release from the Bureau of Labor Statistics on April 3, 2015. The number of jobs added was much lower than in previous months, with only 126,000 new jobs added to the economy, the fewest number since December of 2013. Some job categories added workers, including health care, professional and business services, financial services, and retail. Average hourly wage growth was 7 cents, but average hours worked fell.
Real GDP increased 2.2% in the fourth quarter of 2014, according to the final estimate released by the Bureau of Economic Analysis. This estimate is consistent with the revised estimate. In the third quarter, real GDP increased 5.0%. Consumer spending rose 4.4%, compared to 3.2% in the third quarter. Business investment and exports also increased. Offsetting these gains were increases in imports and decreases in federal government spending, particularly defense spending. (
In its March 18, 2015, statement, the FOMC cited the continued growth of the labor market, increased household and business spending, and below-target inflation as indicators of an economy that continues to recover. They expect below-target inflation to rise as oil prices increase in the medium term. The statement reaffirmed the FOMC intention to keep the federal funds rate at its current low level, but also said that a rate hike was highly unlikely at its April meeting. Notably, the FOMC dropped the word "patient" from its language describing its stance on an improving economy and a rate hike. The Fed revised downward its economic projections, including the rate of unemployment that would sustain a stable inflation rate.
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.
Note: During the second semester of the 2011-2012 school year (January-May), EconEdLink will publish four Focus on Economic Data lessons on "U.S. Real GDP Growth." Real GDP data is announced three times for each fiscal quarter. For Q1 2012, the first estimate is made in April, the second estimate is made in May, and the third estimate for Q1 is made in June.
GDP data reports lag the reporting period - the fiscal quarter. The current estimate is the first for Q1 (January-March, 2012). Each of the three estimates for a quarter will include more comprehensive data and may modify the growth rate reported earlier.
[Teacher Note: Each Real GDP lesson will provide the most up-to-date data and focus on some specific topics or issues related to GDP. Second semester 2010-2011 schedule:
- January 2012 (first estimate for Q4 2011): How to read the data, real vs. nominal, and how the data is collected
- February 2012 (second estimate for Q4 2001): Factors influencing the change in GDP, revisions, and seasonal adjustment
- March 2012 (third estimate for Q4 2011): Business cycles and indicators of future growth (decline)
- April 2012 (first estimate for Q1 2012): More details of GDP growth and U.S. regional comparisons. THIS LESSON ]
- BEA second estimate of US GDP for Q1 2012, news release: Real GDP Growth
Measuring the Economy: A Primer on GDP and the National Income and Product Accounts: This BEA article introduces new users to the basics of U.S. national income and product accounts.
Taking the Pulse of the Economy: Measuring GDP: This article discusses the importance of measuring GDP.
Overview of the U.S. Economy: Perspective from the BEA Accounts: This page provides an overview of current economic data.
Global Business Cycle Indicators: This site produced by The Conference Board, provides business cycle indicators for 11 countries around the world.
NBER determination of the December 2008 Peak in Economic Activity: This is the NBER recession announcement made on December 1, 2008.
NBER determination of the trough and the end of the most recent recession in June, 2009.
Key Economic Indicatorsas of April 27, 2012
On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers rose 0.3 percent in March after rising 0.4 percent in February. The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February.
Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.
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 Federal Open Market Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
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.
[Teacher Note: Ask your 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.]
[Teacher Note: Point out to students the problem of interpreting a big increase or decrease of GDP growth in one quarter as a "trend." 2011 is a good example of one quarter's growth being much greater than the other quarters. Is it a trend?]
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.
[Note to teachers: Students should be able to 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."
[Note to teachers: Students can look at the detailed GDP Data by Industries to identify how well the key industries in their city or region are doing.]
[Note to teachers: Ask your students why they think the BEA chooses to single out automobile sales and computer sales data. Why are these two products so important to understanding GDP growth? Automobile and computer sales are large, normally discretionary purchases.]
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.”
[Note to teachers: Make sure your students are clear about the difference between the nominal (current) dollar GDP and the chained (real) GDP measurements.]
[Note to Teachers: Ask your 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 = $49,557.]
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. 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.”
[Teacher Note: Students can compare their state or region to other states and regions. What factors may have influenced the pace or growth in their state or region? What industries are growing or declining in their state or region?]
Short Answer Essay Question:
1. If gross domestic product increases by 10 percent over a year, are we better off? Why or why not?
[Possible Answer: Perhaps we are better off. Maybe not. The answer depends upon what is happening to prices and what is happening to population. If prices and population together are rising by more than 10 percent per year, than we, on average, are worse off. We have fewer goods and services per person. If the nation's real per capita GDP increases, we may be "better off."]
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.