U.S. economic growth accelerated from 0.4 percent in the fourth quarter of 2012 to 2.5 percent in the first quarter of 2013. This acceleration was driven mainly by increases in consumption growth and inventory investment. Another factor was that government expenditure was less of a negative contribution to growth in first quarter by about half a percent, compared to fourth quarter.
Our most recent economic growth forecast was for 1.5 percent for the quarter just ended, where this forecast was based on a continuation of demure consumption growth and inventory investment from 2012 quarter 4. The estimated consumption growth rate of 3.2 percent is the most rapid since the fourth quarter of 2010. This consumption rate is consistent with a noticeable fall in the BEA’s personal savings rate, from 4.7 percent of disposable personal income in quarter 4 to 2.6 percent in 2013 quarter 1.
Why might early 2013 consumption growth have strengthened relative to 2011 and 2012 consumption growth rates? Two possible factors are the labor market and wealth. While no one would say that the current U.S. labor market is strong, the year-on-year nonfarm job growth rate has exceeded 1.5 percent in every quarter since the start of 2012. Also, the current 7.6 percent unemployment rate is almost 2 percent lower than the 9.5 percent rate that existed at the end of 2010.
Net household wealth has been improving of late as well, where a three trillion dollar increase during the second half of 2012 brought wealth to a new high of $66 trillion dollars.
In our March 19 U.S. forecast release we wrote that we finally see the possibility that the United States economy could transition from a post-financial-crises malaise to a more normally functioning economy within our two-year forecast horizon. We forecasted weak but gradually strengthening growth during 2013, and 2014 economic growth that would be strong relative to most of the post-Great Recession experience.
So far, our 2013 forecast is pessimistic.