GDP Growth

This morning saw the first announcement of GDP figures of 2012 by the Bureau of Economic Analysis at the Department of Commerce. The report showed growth in the first three months of the year of 2.2%. The figures disappointed many who had been hoping, and forecasting, a more positive report.

Analysts who had been forecasting the numbers were looking for around 2.5%. The figures compare favorably with last year, when the economy grew just 0.36% in the first quarter. Despite their large increase year on year the numbers still come in below the fourth quarter 3% growth rate and do not seem enough to have analysts or even politicians promoting a full recovery rhetoric.

There are still large issues facing the American economy and no one wants to say too early which way things will go. Those unwilling to fully commit include financial institutions, investors, consumers and businesses. Fears about a double dip recession or another rocky future will keep recovery humming along but won’t give it the boost it needs to get America back to work.

Problems facing the country’s decision makers include the high price of oil and its effect on inflation, problems in China, an election in November that highlights the divisive subject of government spending, and a European economy in a state of vulnerability unseen for decades. Each of these problems weighs heavily on the future of the United State’s growth and while such uncertainty exists economic growth will be dampened by it.

The uncertainty surrounding Europe may come to a head by the end of next month one way or another. The fate of the fiscal compact, a European Treaty to control Government spending, will be seen in early June after the member states have made their positions clear. The outcome will be used as a proxy for European stability and cogency in the coming months as the continent continues to attempt solutions to its own debt crisis.

The American economy is still depressed. The housing market has not seen a major recovery and may not for some time. The credit market is slow to heal after the wounds left in 2008-2010. Unemployment is still high. Every single one of these metrics is improving and each one will need to be studied separately in order to see the full picture.

GDP figures are a good measure of growth in boom times when everything is flowing right. After the recession the United States has been through it is important not to rely too much on those figures. What is needed is a more nuanced balanced economic understanding.