Matthew C Klein, Columnist

Latest GDP Report Shows U.S. Economy Still Waiting for Liftoff

Growth continues to be sluggish. It might get a lot worse as the tax increases and spending cuts from earlier in the year finally start to bite.

April 26, 2013 at 4:59 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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Forecasters had been expecting the U.S. economy to grow at an annualized rate of 3 percent in the first three months of 2013. The advance estimate released this morning by the Bureau of Economic Analysis was therefore disappointing -- output only increased at an annualized rate of 2.5 percent. It's easy to overstate short-term changes in the data, as well as the importance of surprises. The broader takeaway, however, is clear: Growth continues to be sluggish. It might get a lot worse as the tax increases and spending cuts from earlier in the year finally start to bite.

Digging into the data, the main sources of growth were personal consumption and inventory accumulation, while net exports and government spending cuts were the big headwinds. Private investment spending barely increased in the first quarter. The inventory growth is basically meaningless since it offsets most of the large contraction in inventories that occurred in the fourth quarter of 2012.