Yesterday, the Commerce Department reported that 1Q GDP grew by a measly 0.2% (annual rate). That was well below the pre-report consensus of 1% and down from 2.2% in the 4Q. The trajectory of the US economy is clearly down since late last year.
The US economy slowed to a crawl in the 1Q as businesses slashed investment, exports tumbled and consumers showed signs of caution, marking a return to the uneven growth that has been a hallmark of the nearly six-year economic expansion. Most analysts also cited the severe winter weather again this year as a major factor.
Business investment fell by 3.4% after rising by 4.4% in the 4Q. Investment in non-residential structures plunged 23.1% in the quarter, in large part a consequence of the oil price slump, as energy companies sharply reduced the number of oil drilling rigs. Exports dropped 7.2% as manufacturers lost sales to other countries with more favorable currency exchange rates.
Consumer spending, which makes up more than two-thirds of economic activity, also slowed, growing only 1.9% compared with 4.4% in the 4Q. Rough weather kept many shoppers at home. And government spending declined 0.8% as defense and state and local outlays all fell.
The 1Q figures repeat a common pattern in recent years: one or two strong readings followed by a sharp slowdown. 1Q GDP growth has averaged 0.6% since 2010, whereas all other quarters (2Q, 3Q, 4Q) have averaged 2.9% over the same period. That has worked out to moderate overall expansion but no growth breakout.
Yesterday’s “advance” report will be revised two more times, at the end of May and the end of June. As you may recall, the advance estimate for the 1Q of last year showed a modest increase but was subsequently revised sharply lower as more data became available. It remains to be seen what the upcoming revisions will show.
Most forecasters interviewed after yesterday’s disappointing report still believe that economic growth will improve during the balance of the year. Analysts at Goldman Sachs and the White House Council of Economic Advisors said that the severe winter weather trimmed a full 1% off the GDP number. The West Coast port strike and the strong US dollar also weighed on the economy in the 1Q.
Several forecasters pointed out that severe weather won’t be a factor going forward, and most believe that consumer spending will rebound from the anemic level in the 1Q going forward. They also point out that the West Coast port strike was settled in late February. We’ll see.
Finally, the weaker than expected GDP number virtually assures that the Fed won’t hike interest rates until at least the September policy meeting. Nevertheless, stocks traded sharply lower after the GDP report.
Gallup Economic Confidence Index Trending Lower
Gallup’s Economic Confidence Index averaged -3 for the week ending April 26. The index has been trending lower overall for six weeks, but it is still above where it was for most of 2014. Gallup’s Economic Confidence Index is the average of two components: Americans’ ratings of current economic conditions and their views of whether the economy is improving or getting worse.
The bottom line is that while the confidence index is still higher than it was a year ago, the measure has been trending lower in recent weeks, as we’ve seen several disappointing economic reports.
In a separate survey, Gallup’s Financial Worry Index which tracks the percentage of Americans concerned about multiple common financial challenges, stands at 50%, up slightly from 49% in April of last year. This gauge measures the percentage of Americans who are worried about three or more financial issues out of the seven that Gallup tracks.
The most common worry, afflicting 60% of us, is not having enough money for retirement. The most minor worry, confronting 20%, is not being able to make minimum payments on our credit cards. Other concerns surveyed include medical costs, housing costs, monthly bills, etc.
Gallup’s Lydia Saad commented:
“Americans’ current levels of worry suggest they have still not fully recovered from the recession. While they are less worried about everyday financial matters than they were during and immediately after the 2007-2009 recession, Americans remain more worried than they were in the years preceding it.”
Do you think the GDP estimate will be adjusted lower? Where do you think consumer confidence is headed? Let me know what you think.
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