Yesterday, the Bureau of Economic Analysis (BEA) released its second estimate of the GDP and found the economy contracted by 1 percent during the first quarter of 2014. This is in comparison to the first estimate of an increase of .1 percent, and a much greater fall than the fourth quarter of last year, when GDP increased by 2.6 percent. Today’s Spending Daily will take another look at the BEA estimate.
The BEA found that this was the first time in three years that the economy shrank, with most economists estimating a contraction of around .5 percent. According to Forbes, “The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half).”
The Wall Street Journal speculated that the downturn, which most economists believe will be short-lived, could have a lasting effect for President Obama and fellow Democrats up for midterm elections in November. According to WSJ, “Just 27% of Americans think the U.S. is headed in the right direction, compared with 63% who say things are on the wrong track.” In addition, the overall weakness of the economy is still being marked by lower wages and slow hiring, which leads to less consumer spending. According to Stanford University economist Robert Hall, “The probability of going negative is much higher when the economy is growing slowly and the growth rate is close to zero even before the hiccup.”