Headline Q1 GDP just came in at a disappointing 2.2 per cent, missing analyst expectations.But a deeper look into the numbers reveals a major point. Federal government spending declined once again at an incredible rate: a full drop of 5.9 per cent.
That’s after a 6.9 per cent decline in government spending in the fourth quarter of last year.
Meanwhile, personal consumption rose by 2.9 per cent, crushing expectations for a 2.3 per cent rise, and up from 2.2 per cent growth in Q4 2011.
Government spending plays a huge role in the GDP number—it’s calculated by Y = C + I + G + (X − M) [or GDP = private consumption + investment + government spending + (exports − imports)].
Meanwhile, we’ve once again witnessed a big win for consumers—private demand is steadily increasing.
So these GDP numbers indicate that the economy is growing in all the right places: the government is no longer propping up economic growth and the real strength in the economy is the consumer, a much more sustainable root of growth.
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