Press Releases

Statement by Acting Assistant Secretary for Economic Policy Alexander Gelber for the Treasury Borrowing Advisory Committee (TBAC) of the Securities Industry and Financial Markets Association (SIFMA)

(Archived Content)


WASHINGTON - Economic growth accelerated during the first quarter of 2013.  The advance estimate by the Bureau of Economic Analysis (BEA), released late last week, showed that real GDP increased by 2.5 percent at an annual rate, following a 0.4 percent increase during the final quarter of 2012.  The pickup in growth during the first quarter reflected faster growth of consumer spending, a large increase in inventories, and a smaller drag from declining government outlays. 

Growth of real consumer spending strengthened to a 3.2 percent annual rate in the first quarter from a 1.8 percent pace in the fourth quarter despite the expiration of the temporary payroll tax cut.  A weather-related increase in utilities consumption contributed to the stronger pace of growth, but even excluding utilities consumer spending grew at a faster pace in early 2013.  Farm inventories increased sharply in the first quarter as agricultural output rebounded after last year’s drought.  Altogether the change in private inventories contributed 1 percentage point to first-quarter GDP growth, a marked turnaround from the fourth quarter, when inventories subtracted 1.5 percentage points from growth.  Government spending continued to decline but weighed less heavily on growth than in the fourth quarter, when federal defense expenditures fell by more than at any time since the early 1970s.  Growth of private fixed investment slowed in the first quarter, mainly reflecting a moderation in the pace of business plant and equipment spending. The trade deficit widened as imports rose faster than exports, subtracting 0.5 percentage point from real GDP growth.

Growth of final sales to private domestic purchasers – the sum of consumption, business fixed investment, and residential investment – remained solid at a 3.3 percent annual rate in the first quarter.  This measure of underlying private demand has grown at an average annual rate of roughly 3 percent over the past three years, exceeding headline GDP growth of just over 2 percent.  Government consumption and investment has fallen at a 2.3 percent pace over the past three years, partly reflecting fiscal tightening at the federal level.

The United States has managed a steady pace of fiscal withdrawal of about 1 percentage point of GDP per year on average since FY2009, with the federal budget deficit falling from a peak of 10.1 percent of GDP to 7.0 percent in FY 2012.  More than $2.5 trillion in deficit reduction measures have been enacted over the past two years, not including the $1.2 trillion sequester that took effect in March.  The Administration’s FY 2014 Budget proposal would replace the sequester and reduce the deficit by an additional $1.8 trillion over the next decade, bringing the total amount of deficit reduction to roughly $4.3 trillion.  The combination of proposed deficit reduction measures and stronger expected U.S. economic growth is projected to put our national debt on a declining path as a share of the economy and lower the deficit to less than 2 percent of GDP by 2023.

Meanwhile, the private sector-led recovery continues to solidify.  The housing sector is showing clear signs of improvement with housing construction, home purchases, and home prices posting solid and steady gains over the past year. Residential construction has made a positive contribution to GDP growth in each of the past eight quarters – the longest such string since 2005.  During the first quarter of 2013, residential investment rose 12.6 percent, after climbing nearly 15 percent in 2012, the strongest yearly increase since 1983. 

The expiration of the temporary payroll tax cut lowered real disposable income in the first quarter relative to the end of 2012, but continued improvement in household balance sheets along with steady recovery in the housing and labor markets is favorable for income growth and consumer spending going forward.  Household debt outstanding as a share of personal income fell to a 10-year low in late 2012.  Household wealth relative to disposable income continued to rise in the fourth quarter and is currently above its long-term average, although a bit below the all-time high reached in early 2006.  Rising home prices and the strong performance of equity markets so far this year suggest that the recovery in household wealth continued at the start of 2013. 

Businesses are well-positioned to increase their level of investment as domestic demand strengthens and global economic conditions improve.  Corporate profits as a share of gross domestic income are near an all-time high, cash holdings are high, and borrowing costs are low. 

Labor market conditions have improved steadily since payroll employment began growing again more than three years ago.  Since then, nearly 6.5 million private-sector jobs have been created.  The pace of job growth slowed in March to 95,000 from an average monthly gain of 223,000 in the prior five months but other measures of labor demand, including the length of the average workweek and aggregate hours, continued to rise.  The unemployment rate has fallen by 2.4 percentage points from a peak of 10.0 percent in October 2009 and stood at a four-year low of 7.6 percent in March.

Private forecasters are anticipating a temporary slowdown in growth during the second quarter, reflecting the impact of the sequester as well as a moderation in the rate of inventory accumulation following the first quarter’s large buildup.  Although the economy continues to face a number of potential challenges in the near term, including the risk of renewed setbacks in Europe and the impact of additional fiscal tightening on economic activity, a consensus of private forecasters expects the pace of growth to strengthen during the second half of the year to a 2.5 percent annual rate and accelerate gradually over the course of 2014.