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TheStreet Open House

First-quarter GDP Gets A C Grade





Give the U.S. economy a C for the first quarter of 2013, which at least is an improvement over the failing grade it earned in the fourth quarter of 2012.

Last Friday, the Bureau of Economic Analysis (BEA) released its advance estimate for the Gross Domestic Product (GDP) in the first quarter. The BEA found that real GDP grew at a 2.5 percent annual rate during the quarter. In the current environment, the growth rate of GDP can be evaluated as if it were an academic grade: 4.0 would be an A, anything above 3.0 a B, above 2.0 a C, and so on. Hence the C grade for the first quarter -- not terrible, but not particularly exciting either.

Highlights of the GDP release

Perhaps the best thing that can be said about the 2.5 percent growth rate for real GDP is that it is an improvement over the previous quarter's 0.4 percent. A positive highlight of the recent report is that exports posted a 2.9 percent gain in the first quarter, after having declined by 2.8 percent in the previous quarter. A negative highlight is that reduced government spending continues to act as a drag on the economy. The BEA reported that federal government spending declined by 8.4 percent in the first quarter.

The BEA will issue a revised estimate of first quarter GDP growth in about a month's time, at which point the picture of the economy in early 2013 should start to become more clear.

Implications for savings accounts

The rate of economic growth has a great deal to do with the level of interest rates on savings accounts and other deposits. A weak economy indicates there is little demand for capital, which means banks don't have much incentive to offer higher rates to attract deposits.

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