US economy fizzles as GDP growth falls below expectations

Reuters / Laszlo Balogh
The US Department of Commerce has unveiled their latest report on the country’s economy, and it isn’t good news. The findings published Friday confirm that economic growth did not meet expectations.

The report reveals that the rate of growth for the country’s gross domestic product (GDP) only clocked in at 2.2 percent for the first quarter of 2012, down from the 3.0 rate that the US saw at the tail end of the previous year. Economists had largely expected the statistic for the first three months of 2012 to more closely resemble a rate of around 2.5 percent, and even the Federal Reserve had predicted that the rate of growth could be as high as 2.9 percent. Instead, the latest news from the Commerce Department all but confirms that the United States is far from crawling out from the slump brought on by the last recession.

On the heels of the news, the Financial Times reports that spot gold hit a session high on Friday and the value of the US dollar when compared to the Japanese yen was at its lowest in weeks.

Although the news is not necessarily dire, it does not ease the worries of economists in America who had hoped for more optimistic news this week.

"The US economy remains a bright light in the global economy, although the light is hardly blinding, and also showing some signs of fading," Chris Williamson, a chief economist at Markit in London, tells the Financial Times.

The Commerce Department adds that, although GDP grew last quarter by a rate that did not meet economists’ expectations, consumer spending — which makes up around 70 percent of economic activity in the US — was on the rise. Although late 2011 saw consumer spending increasing at arate of only 2.1 percent, the latest findings show that spending in recent months expanding by a rate of 2.9 percent.

From their New York bureau, the UK’s Guardian reports that the most of the increase in consumer spending could be linked to a pent-up demand for automobiles, as motor vehicle output in the US contributed around 1.12 percent of the first quarter GDP change. David Semmens, a senior economist at Standard Chartered, tells the paper that that isn’t necessarily a good thing, either.

"It's not a fantastic report. Vehicles accounted for half the growth – that's not sustainable. Consumers are continuing to spend money that they don't have,” he tells the Guardian.

Federal Reserve Chairman Ben Bernanke was also not-too optimistic about the report, calling the pace of recovery “frustrating” nearly three years after the recession was thought to be over.

"Here we are almost three years from the beginning of the expansion, and the unemployment rate is still over 8 percent … It's been a very long slog. And that, I think, would be the single most concerning thing," says the chairman.

In a New York Times report published in October, the paper reports that although the government has called the recession officially over, the median household income (adjusted for inflation) has dropped by 6.7 percent since June 2009.