The official report on United States GDP growth for the first quarter of 2012 was published last Friday. The report found that GDP growth was a tepid 2.2%. This figure trailed the 2.6% growth estimate that economists were hoping for. It was also a stark decline from the 3% growth the United States experienced during the fourth quarter of 2011.
The decline in growth presents a variety of challenges for the United States economy. The growth rate would have been even worse if American consumers hadn’t increased spending by the most in a year and a half. Governments and businesses both cut back growth. Even more worrisome, half of the GDP growth was fueled by an increase in automobile spending.
Economists have warned for a couple of years that a purely consumer driven economy is not sustainable. The newest economic report shows that the state of the economy is even worse than previously anticipated. Consumers are increasing their debt levels and spending more money they don’t have. Personal savings dropped by nearly 15% as purchases rose considerably faster than incomes. After a bad GDP report and signs of a slowing job market could put a damper on consumer confidence. A contraction in consumer spending would slow growth further, possibly sending the United States into a new recession along with the UK and most of the rest of Europe.
Earlier this week, United States Federal Reserve chairman Ben Bernanke raised his projections for economic growth. He also stated that the United States economy faces a number of new challenges as it tries to cope with a collapsed housing market, an unemployment rate that has been over 8% for three years, increased consumer uncertainty and growing social unrest. More recently, gas prices have started to rise considerably, which is also taking its toll on consumers.
The number of challenges the United States is facing at the moment still lags the state of the European economy. However, the global community is concerned that the possibility of a recession in the States would only impound the economic pain the rest of the world is facing right now.