The U.S. Bureau of Economic Analysis announced that GDP, which stands for gross domestic product or "the output of goods and services produced by labor and property located in the United States," grew by 2.5% in the first three months of 2013.
Despite a big bump from the personal consumption expenditures showing significant improvement from the fourth quarter's 0.4% GDP growth, the first quarter performance was lower than estimates. Nonetheless there are some significant improvements in consumer spending. Here are the three most important things you should know.
1. Consumers Are Making a Comeback:
Consistent growth in the economy for the last 15 consecutive quarters is considered weak because it averages only 2%, however the numbers released today show that consumers stood strong against the higher taxes and increased gas prices that kicked off 2013. Consumer spending rose by 3.2% in the first quarter which is the strongest growth since 2010.
Purchases of "durable goods" or long-lasting household products like washing machines, refrigerators, dishwashers etc were mostly responsible for this increase. People are buying higher-ticket items again after cutting back, which means that households are feeling more financially secure. People are also importing more goods, which despite being negative for GDP shows a healthy domestic demand.
2. Apartment buildings are fueling the housing recovery:
A significant jump in the construction sector shows that housing's recovery isn't just a temporary rebound. Not only are construction company stocks booming again, multi-family homes are leading the charge to recovery.
As consumers delay purchasing a house, whether because of limited finances or young adults who prefer to rent and avoid debt, construction of apartment buildings is hitting its "pre-recession peak," sending rental prices skyrocketing. Further pushing the boom is the lower likelihood of default on multi-family homes and decreased home-ownership after the Great Recession.
3. Business & government is bringing us down:
The consumer sector's growth was dragged down by sharp decreases in business investment — down to 3% in the first three months of 2013 from 11.8% at the end of 2012. Businesses decreasing their investing, especially in things like equipment and software is a sign that the businesses do not see enough revenue to offset continual growth in their services. Despite the increase in exports showing a stronger global demand for U.S. goods, the decrease in investments is something to watch for as the year progresses.
The extensive cuts in public-sector investment because of the tax deal of 2012 or sequestration will significantly hamper growth. The 4.1% growth is the ninth decline in the past ten quarters. Defense spending showed the biggest cuts, decreasing spending at 11.5% after a 22.1% reduction at the end of 2012. This could be considered a positive signal as we pull out of Afghanistan and become a smarter military. However, if these funds are not being diverted to programs that will spur the economy, then the reduced investments will start having a negative impact on consumers and businesses providing government services.