The economy grew 3.2% in the first quarter (January - March) 2010, down quite a bit from the 5.6% growth rate in the fourth quarter 2009. Businesses restocking low inventory contributed 1.57 points to this growth. This is to be expected at this stage of the business cycle for an economy coming out of a recession. However, it is not a driver of growth, and will fall off in the next few quarters. (Source: Bureau of Economic Analysis, Q1 GDP Report)
So, how much did the economy really grow last quarter? Subtract 1.57% from 3.2% to get the answer - 1.63%. What drove this growth? An increase in personal consumption. People are getting sick of sitting at home and doing without. They are starting to go out to eat again (contributed .34 points, after being down for the last five quarters). They are also buying shoes and clothes (contributing .23 points, after being down for five quarters).
What It Means to You
Even a 1.8% growth rate means the economy is technically out of recession. Recessions are usually defined by two consecutive quarters of negative GDP growth. Job losses will continue, however, since growth needs to be 3% or more for businesses to add jobs. Will the American consumer keep spending if employment doesn't grow and housing prices stay flat? Possibly, since the savings rate declined in March. Stay tuned to find out!
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