U.S. GDP decreased -0.7% due to both weak U.S. exports, and drop in private investment.

U.S. Gross Domestic Product decreased by -0.7% the first quarter of 2015, the Department of Commerce reported today May 29th 2015. (The third estimates indicated that the actual contraction of the economy was about 0.2%). These reported data are the second estimates after adjusting by price change. The Bureau of Economic Research claims the negative growth in GDP was largely driven by negative contributions from exports, nonresidential fixed investments and lower state and local spending. Besides a worrisome decrease in private investments, BEA also blamed price index for domestic purchases, which decreased 1.6 percent in the first quarter. Generally speaking, a mix of three factors plunged down GDP growth for this period: decline in U.S. exports, drop in private investment, and decline in goods prices. Along these lines, something to bear in mind before jumping into conclusions is the ongoing debate on first quarter economic data (Justin Wolfers).


The worrisome aspects of U.S. economic performance during 2015Q1r pertain to private investment. Both, nonresidential fixed investments and investments in nonresidential structures decreased by 2.8% and 20.8%, respectively. Investments in acquisition of new equipment hovered over 2.7% increase, as well as Investment in Intellectual property products and Real Residential fixed investments, which showed 3.6% increase and 5.0% increase correspondingly.


Although Durable Goods had had important contributions to GDP growth for the last three quarters of 2014, it barely increased in 2015Q1. Same anemic dynamic showed Nondurable Goods which increased 0.1% from the previous quarter. Personal consumption in general slowed down GDP rate of change. These data pose questions on interest rate and consumers’ future expectations. First, Durable Goods are usually bought with loans and credits, therefore they highly depend on interest rates. Second, interest rates are certainly low at the moment, which begs for questioning consumers’ future expectations on their economic conditions. Apparently, these data point toward a worrisome deteriorating confidence in spending on the demand side of the economy.


Finally, Exports did not help GDP growth on 2015Q1. Exports of goods and Services decreased -7.6%, compared to 4.5% increase in the last quarter of 2014. On the other hand, Imports of Goods and Services increased 5.6% on 2015Q1.


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