During the First Quarter of 2011 the Economy has Slowed Down

During the first quarter of 2011 the economy has slowed down thanks to increase in price of gas, damaging storms and Pentagon’s tightening of purse strings. Good numbers of pundits think that this was only a temporary lapse and will be followed by bigger expansion during the following months. But can this be believed?

Price of gas is continuing to climb while the housing market is showing no signs of getting out of the gloom; meanwhile the federal government is poised to bring about drastic cuts in spending. This will also tell on the local administration – the latter already being corned with their budget deficits. All this could result in the dragging of the economy all through the remaining months of this year although there has been a slight improvement in employment.

Sung Won Sohn of California State University (economist) said, “Just about every piston in the engine lost its power during the quarter. I don’t think all those negative factors are going to disappear”.

During the first quarter the growth of the economy was at an annual rate of 1.8%. In the previous quarter it had been 3.1% according to the Commerce Department. Since last spring this has been the worst reading. At that time the debt crisis of Europe had resulted in the slowing down of the growth in America to 1.7%.

The growth is measured by the GDP (gross domestic product) – the total production of services and goods. It impacts each time a person purchases a car, goes to the salon, visits the doctor or buys gas for the car.

For calculating the GDP the government adds up spending by consumers, investments by businesses and spending by the government. This is then subtracted from the deficit in trade. America has a trade deficit because the import value is more than that of exports.

One of the major causes for this slow growth rate is the continued increase gas prices. It is soaking up money meant for other spending on things like appliances and cars, clothing, eating out and holidays. Spending on fuel does not benefit the economy like other types of spending does.

Nearly half the earnings flow out to the countries exporting oil; to some extent the oil firms of America and retailers of gas benefit. Since the first three months gas prices are showing no signs of going down. On an average the consumers pay across the nation, $3.89 per gallon. It is 30 cents above what was paid one month previously and $1.02 than what was paid a year previously.