March 2012 quarter US GDP growth came in a bit below market expectation at a seasonally adjusted annual rate of 2.2%. This was slightly below market expectations of 2.5% and below the December 2011 quarter out-turn of 3.0%.
There was good and not so good news in the make-up of the result. The good news first: real personal consumption expenditure rose 2.9% in the quarter. That’s thanks largely to a sharp increase in expenditure on durable goods as American motorists headed to the car yards. The American vehicle fleet has been ageing recently as consumers have delayed replacing big ticket items such as cars. Some things can only be delayed for so long. Growth in services spending was pretty soft at 1.2%.
Growth in investment spending was mixed. Residential construction rose an annualised 19.1% (off a low base) while non-residential construction fell 12.0%. Business spending on equipment and software put in its weakest quarter since the depths of the GFC recession, rising at an annualised 1.7%. That worries us somewhat: our growth “recipe” for America continues to rely on business investment and exports as the primary ingredients. We were also a little concerned at the build-up in inventories over the quarter. The extent to which that was or wasn’t intentional will have implications for production down the track.
Net exports were flat over the quarter. That belied a relatively strong exports quarter with their highest quarterly growth rate in a year. That was, however, offset by imports also having their strongest quarter in 12-months. The Government sector continues to be a significant drag on growth falling an annualised 3% in the quarter, its sixth consecutive contraction in activity. This will be a long-term phenomenon as local, state and federal government inch their way to more sustainable fiscal positions.
This was the eleventh consecutive increase in quarterly GDP. That’s a pretty good result considering at least two double-dip panics. There will no doubt be more. In fact we believe June quarter growth will be lower again at around 1.8% (saar), but 2.2% followed by 1.8% is significantly better than the 0.4% and 1.3% recorded for the same quarters last year. We continue to believe the US economy will continue to grow at around a 2% pace on average, with fiscal consolidation the major looming headwind.