Weekly Economic Trends and Indicators
Real gross domestic product (adjusted for inflation) increased at a seasonally adjusted annual rate of 1.6% in the first quarter of 2024 according to the Bureau of Economic Analysis. This was down from a 3.4% increase in the last quarter of 2023.
Most of the growth of GDP was due to strong consumer spending activity. Fixed investment, most notably residential construction, also contributed to growth. The decrease in private inventories was a significant drag on GDP as was the increase in spending on imports.
Consumer spending, which accounts for over two-thirds of total economic activity, increased at an annual rate of 2.5% in the quarter. Fixed investment was up 5.3% with the residential construction component up 13.9%. Government consumption and investment increased 1.2%, which was the lowest increase in nearly two years. The deceleration of government spending likely shaved off about half-a-percent from the overall GDP growth rate.
The combination of lower than expected growth and higher than expected inflation complicates the monetary policy picture. Due to the inflation number, the Fed is unlikely to cut rates any time soon. September still looks like the earliest. However, due to the slowing economy the risk of recession due to policy error is slightly elevated.
We will have further analysis of first quarter GDP in the Quarterly Market Report coming up later this month.
In recognition of Small Business Week (April 28-May 4), we now turn our attention to the tremendous impact that small businesses have on the economy. Small businesses are defined by the Small Business Administration (SBA) as a business with fewer than 500 employees. According to the Census Bureau, there were 5,358,600 small businesses in the U.S. in 2021, and over half of all business establishments (56.6%) had fewer than 5 employees.
In fact, the U.S. Chamber of Commerce reports that small businesses have consistently accounted for approximately 40% of U.S. GDP for the past 20 years. In today’s dollars, that would be over $10 trillion. The importance of small businesses in the economy cannot be overstated.
The impact of small businesses goes beyond GDP, but can also be measured in jobs. Again, according to the U.S. Chamber of Commerce, about 63% of new jobs created from 1995 to 2021 were created by small businesses. In terms of exports, over 97% of exporters are small businesses, and they create about one-third of the overall value of exports.
These national statistics are reflected in our business community here in the Quad Cities as well. The vast majority of businesses in the Quad Cities meet the SBA definition (under 500 employees) of small businesses, with hundreds of businesses that employ under 100—including many family businesses that only employ a handful of people. It is likely that you have recently patronized one of these businesses. Statistically speaking, if you are reading this blog, there is a good chance that you are employed by one of these businesses.
As we monitor GDP and labor market data, we should always keep in mind that economic growth is not just an abstraction that applies only to large companies, but that it is the day-to-day life of small business as they provide goods and services as well as jobs to our friends and neighbors. Economic policy decisions that affect GDP are not only felt by large companies. Those decisions affect the livelihood of small business owners and employees. This week, especially, we celebrate the contributions of small businesses to the economic vitality of the region.
Next week: Labor market update
