BY: Dr. Mike Campbell

Data which emerges for the annualised gross domestic product (GDP) of a nation shortly after the quarter to which it pertains is invariably provisional. As solid data comes in, the GDP figure can be revised up or down to reflect the actual economic performance.

Figures just released for the performance of the US economy during the second quarter of 2011 show that the economy grew at an annualised rate of 1.3% which fell markedly below analysts’ predictions of a 1.8% GDP figure. Worse news came in the shape of the revised Q1 GDP figures. The initial evaluation of US economic performance in Q1 came in at 1.9%, but this has now been re-evaluated down to just 0.4%.

The poor Q2 data will be due, in part, to perturbations caused to the economy following from the Japanese earthquake and tsunami which occurred towards the end of Q1. However, the largest effect is believed to be due to falling consumer spending within the US. The US domestic market is responsible for approximately 70% of the nation’s economic output, so reduced domestic confidence or demand has a significant effect on the GDP data. Consumer spending grew at just 0.1% in Q2 compared to growth of 2.1% in the previous quarter.

Q4 also saw a downwards revision of growth from 3.1 to 2.3%, indicating that the US economy had started to slow towards the end of last year. The reduction in the Q1 GDP figure was largely due to the influence of higher imports and lower capital investments than originally thought. Additionally, the manner in which seasonal factors are included in the data has been revised.

Revised figures from the US show that the 2007-2009 recession was worse than originally thought with contraction of the economy of 5.1% rather than the 4.1% figure initially believed.