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Ed Dolan’s Econ Blog US Corporate Profits Take Big Hit as Q1 GDP Falls a Full Percentage Point Posted May 29, 2014 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.

May 29, 2014 Ed Dolan’s
Econ Blog US GDP Falls in Q1 2014  The second estimate from the Bureau of Economic Analysis released on May 29 showed that US real GDP fell at an annual rate of 1.0 percent in Q1 2014  The advance estimate released in April had shown positive growth of 0.1 percent  Harsh winter weather undoubtedly contributed to the downturn

Phases of the Business Cycle
 According to standard business cycle terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak  The recovery phase is the upward movement from the trough (low point) of the recession and continues until GDP again reaches its previous peak.  Once GDP moves above its previous peak, the expansion phase begins.  The latest data show that the expansion has stalled, although growth is expected to resume in the second quarter May 29, 2014 Ed Dolan’s Econ Blog

Sources of Growth by Sector
 Most of the fall in GDP was due to a decrease in investment, especially a sharp decrease in inventories  The contribution from consumption was positive but lower than the 2.22 percentage points in Q3  A decrease in expenditures of state and local government was only partly offset by an increase in Federal expenditures  Exports, which had been a strong point of the recovery, also turned negative Contribution by sector to the -1% GDP growth in Q1 2014 Note: Imports are recorded in the national accounts with a negative sign, so the -.12 percentage points shown here represent an increase in imports May 29, 2014 Ed Dolan’s Econ Blog

Export Growth Plunges  Exports
have played a leading role in GDP growth during much of the recovery  Beginning in Q2 2012, the growth of exports slowed, but then recovered again in the last three quarters of 2013  In Q1 2014, exports took a dive, turning in by far their worst performance since the depths of the recession May 29, 2014 Ed Dolan’s Econ Blog

State and Local Spending Turns
Negative Again  Decreasing government spending, has been a negative influence on GDP growth for most of the past 3 years  In mid-2013, state and local government spending showed the first convincing growth for four years, more than offsetting the continued decrease in federal spending  In Q1 2014, the situation reversed, with S&L spending making a negative contribution that more than offset a tiny increase in federal government spending May 29, 2014 Ed Dolan’s Econ Blog

Corporate Profits Take a Dive
 For most of the past two years, corporate profits have been running at or near record-high levels  Profits before tax fell 10 percent in Q1 2014 and profits after tax plunged by 14 percent  Despite the sharp drop, corporate profits after tax remained above the peak reached during the boom that preceded the Great Recession May 29, 2014 Ed Dolan’s Econ Blog

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