The U.S. Bureau of Economic Analysis recently reported that the economy grew by 1.6% in the March quarter, falling short of growth expectations that ranged from 2.1% to 2.7%. However, it’s important not to read too much into any single quarter’s GDP growth rate, as these calculations are based on quarter-to-quarter comparisons. The four key components of the United States economy are Personal Consumption, Gross Private Domestic Investment, Net Exports of Goods and Services, and Government Spending. Personal Consumption is the most important segment as it makes up about 69% of the total economy.
Gross Private Domestic Investment is the second most important segment, comprising approximately 18% of the economy and providing insight into how company CEOs view the economic outlook. Changes in inventory levels within Gross Private Domestic Investment can significantly impact economic growth in any given quarter. In the March quarter, inventory changes subtracted 0.35% from the total growth rate compared to a negative impact of 2.22% in the same quarter the previous year. While Net Exports of Goods and Services is important for the economy, its impact in any given quarter can be highly variable. It subtracted 0.86% from the March 2024 quarter, while adding 0.58% a year ago.
Government spending is not necessarily indicative of the economy’s underlying strength or weakness. It only added 0.21% in the March quarter, compared to a positive impact of 0.82% a year ago. A better calculation to assess the economy’s strength or weakness may involve removing inventory changes and government spending, focusing on Personal Consumption, Gross Private Domestic Investment without inventory impacts, and adding Net Exports of Goods and Services.
Looking at the economy’s performance since the beginning of the Covid pandemic and its recovery, there has been only one quarter of decline post the initial shutdown of the economy. Taking into consideration various factors affecting the economy, it has been growing at a nice clip, except for a weak spot in the second half of 2022 when concerns about a recession arose. Considering a second calculation that removes the Net Exports component, along with the inventory changes and government spending, paints a slightly different picture of the economy’s growth trajectory. The data suggests a relatively stable growth pattern with some fluctuations over the past few years.
