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Economy in Brief

Foreign Trade Drag & Prices Up, US GDP Growth Down
by Tom Moeller April 28, 2005

US real GDP growth of 3.1% (AR) in 1Q05 was the slowest in two years and fell short of Consensus expectations for a 3.5% advance. Also a surprise was the 3.3% rise in the GDP Chain Price Index. This strongest gain in four years easily surpassed estimates for a 2.1% increase.

The drag on US output from a deepened foreign trade deficit increased to 1.5 percentage points due to an acceleration in real import growth to 14.7% (10.8% y/y). Growth in auto imports accelerated to 13.7% (5.5% y/y) and nonauto consumer goods imports held steady at 27.8% (15.4% y/y). Capital goods imports slipped to 4.9% (14.3% y/y) and growth in exports more than doubled to 7.0% (5.9% y/y).

The acceleration in the chain price index was due to inventories and a faster 2.2% (1.6% y/y) gain in consumer prices less food & energy. In addition, after two quarters of deflation prices for business equipment & software rose 0.6% (-0.5% y/y). Overall, the price index for domestic demand held about steady at 3.0% but the y/y gain of 2.8% is up from 1.7% a year ago.

Domestic demand growth suffered mostly from slower business investment growth which fell to 4.6% (11.1% y/y) from 14.5% in 4Q. Growth in business fixed investment in computers & software picked up to an even headier 24.3% (15.7% y/y) but spending levels elsewhere fell. Consumer spending growth slipped to 3.5% (3.6% y/y). Less computers real GDP grew 2.5% (3.3% y/y) versus 4.3% growth during 2004.

Faster inventory accumulation contributed the most to output growth in a year. The 1.2% add reflected a change in real private nonfarm inventories of $82.5B which was the fastest since early 2000 and nearly double the 4Q04 rate.

A Big League Economy Tunes Up in Spring Training from the Federal Reserve Bank of Dallas is available here.

Chained 2000$, % AR 1Q '05 (Advance) 4Q '04 (Final) Y/Y 2004 2003 2002
GDP 3.1% 3.8% 3.6% 4.4% 3.0% 1.9%
  Inventory Effect 1.2% 0.5% 0.4% 0.4% -0.1% 0.4%
Final Sales 1.9% 3.4% 3.2% 4.0% 3.1% 1.4%
  Trade Effect -1.5% -1.4% -0.8% -0.4% -0.3% -0.7%
Domestic Final Demand 3.2% 4.5% 4.0% 4.4% 3.4% 2.1%
Chained GDP Price Index 3.3% 2.3% 2.5% 2.2% 1.8% 1.7%
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