Gross Domestic Product is a measure of the nation’s economic activity. The statistic measures the sum of the nation’s production for both the private and public sectors. A nation with an increasing GDP in real terms is considered to be growing, while one with a declining GDP in real terms is in recession. (NOTE: By real economists mean adjusted for inflation and population).
The BEA put out its revised estimate of 1th quarter 2013 GDP and reports that the overall economy grew by 2.4 percent in the quarter, down just slightly from its initial estimate of 2.5 percent growth. This reflected downward revisions to private inventory investment, to exports, and to state and local government spending. While 2.5 percent GDP growth is generally considered good, this figure comes off of near zero growth in the 4th quarter of 2012, and does not suggest substantial economic activity on the horizon.In addition, to revising GDP, the BEA put out its preliminary corporate profit estimates for the 1st quarter. In spite of rapid growth in the stock market, these figures were not great. In fact, profits from current production decreased $43.8 billion in the first quarter, in contrast to an increase of $45.4 billion in the fourth; however, cash-flow was up suggesting additional balance sheet recovery at the corporate level.
Businesses and industries should be concerned about slow GDP growth because the overall level of income available to customers tracks this number. The adjustment to the 1st quarter number was modest, and reflected reductions in government spending and inventory growth- neither of which should be a concern. The cost of sequester is likely not going to be substantial in terms of GDP and we should continue to see this languid 2 to 2.5 percent growth through 2013.
We believe that continued slow growth in the economy will keep the pressure on the Federal Reserve to keep interest rates at ridiculously low levels forcing continued bond purchases on the open market. This should also keep unemployment rates from changing dramatically during 2013 which will keep downward pressure on labor costs. Pressure will continue on the dollar making imports more expensive and helping to stimulate exports to some extent.