US GDP growth slowed to 0.1 percent in Q1 2014 while PCE inflation remained well below the Fed's target of 2 percent

1. Economics for your Classroom from
Ed Dolan’s Econ Blog
US GDP Growth Stalls as the
Fed Misses its Targets by a
Wide Margin
Posted April 30, 2014
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2. April 30, 2014 Ed Dolan’s Econ Blog
US GDP Growth Stalls in Q1 2014
 The advance estimate from the
Bureau of Economic Analysis
released on April 30 showed that US
real GDP grew at just a 0.1 percent
annual rate in Q1 2014
 That is a big decrease from 2.6
percent in Q4 and 4.1 percent in Q3
 Harsh winter weather undoubtedly
contributed to the downturn

3. Phases of the Business Cycle
 According to standard business cycle
terminology, the recession phase of the
business cycle is the downward
movement of GDP from its previous
peak
 The recovery phase is the upward
movement from the trough (low point)
of the recession and continues until
GDP again reaches its previous peak.
 Once GDP moves above its previous
peak, the expansion phase begins.
 The latest data show that the expansion
is continuing. Real GDP is now 6.3
percent above the previous peak
April 30, 2014 Ed Dolan’s Econ Blog

4. Sources of Growth by Sector
 The slowdown was broadly based. The
contribution from consumption was positive
but lower than the 2.22 percentage points
in Q3
 Investment, including fixed, inventory, and
residential, was negative
 A decrease in expenditures of state and
local government was only partly offset by
an increase in Federal expenditures
 Exports, which had been a strong point of
the recovery, also turned negative
Contribution by sector to the .
1% GDP growth in Q1 2014
Note: Imports are recorded in the national
accounts with a negative sign, so the 0.24
percentage points shown here represent a
decrease in imports
April 30, 2014 Ed Dolan’s Econ Blog

5. Export Growth Plunges
 Exports have played a leading role in
GDP growth during much of the
recovery
 Beginning in Q2 2012, the growth of
exports slowed, but then recovered
again in the last three quarters of 2013
 In Q1 2014, exports took a dive, turning
in by far their worst performance since
the depths of the recession
April 30, 2014 Ed Dolan’s Econ Blog

6. State and Local Spending Turns Negative Again
 Decreasing government spending, has
been a negative influence on GDP
growth for most of the past 3 years
 In mid-2013, state and local government
spending showed the first convincing
growth for four years, more than
offsetting the continued decrease in
federal spending
 In Q1 2014, the situation reversed, with
S&L spending making a negative
contribution that more than offset a tiny
increase in federal government
spending
April 30, 2014 Ed Dolan’s Econ Blog

7. The Fed is Missing its Targets
 The Federal Reserve has set
targets of 5.5 percent
unemployment and 2 percent
inflation, as measured by the
index for personal
consumption expenditures
 As this chart shows,
unemployment has gradually
decreased during the
recovery, but inflation, at 1.4
percent in Q1, is still running
well below its target
 The arrow shows the trend
since 2010, which is clearly on
track to miss the bullseye
April 30, 2014 Ed Dolan’s Econ Blog

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