U.S. Economy more Tortoise than Hare
Maybe the U.S. economy will bounce back in a big way in the spring, but the early evidence is sorely lacking.
Let’s see. Retail sales were disappointingly flat in April. Consumer sentiment fell to a seven-month low. And industrial production fell for the fifth straight month.
Other than that, everything is hunky-dory.
Don’t expect a batch of secondary reports this week to alter the picture. New home construction and sales of previously owned homes probably got a touch stronger in April as the industry heads into the prime spring-buying season. And layoffs around the country are likely to remain at a 15-year low, a sign that businesses do expect the economy to improve after nearly grinding to a halt early in the year.
Yet 3% annual growth appears as elusive as ever after a dismal 0.2% reading in the first quarter that will likely to revised to show contraction. The last time the U.S. grew 3% or more — the historical average is 3.3% — was 10 years ago, in 2005.
What’s going on?
The problems are easy to see. A stronger dollar has battered U.S. exporters, for one thing. Cheaper gasoline prices that are great for consumers have hit the fast-growing energy industry hard. Drillers have shed thousands of jobs and put off planned investments. And consumers and companies have generally been tightwads.
“Households and businesses have shown more restraint in their spending than we expected,” the New York Fed noted last week after slashing its growth forecast for 2015 and 2016.
As a result, the economy is on track to grow less than 1% in the second quarter, according to the most recent update of the Atlanta Federal Reserve’s gross domestic product tracker. The New York Fed, for its part, slashed its growth forecast for 2015 to 1.9% from a 3.5% estimate a year earlier.
Not everyone is convinced the economy is worse off, though.
Some experts, for instance, believe GDP suffers from inherent flaws that make it make ita less reliable indicator of growth. Joseph Bernstein, chief economist of AllianceBernstein, points out that it’s rare for the U.S. to experience contraction when the number of hours that U.S. employees work increases as it did in the first quarter.
“Something seems off,” he said.
GDP vs. employment
Suspicions about GDP have also been raised by top Fed policy makers such as Stanley Fischer, the vice chairman.
“U.S. employment data is more reliable than output [GDP] data, which is subject to wide revisions,’ he said at a recent conference. “I think there is a significantly positive probability that GDP may not be accurate.”
Investors will get a closer glimpse at what top Fed officials think with Wednesday’s release of the minutes from the central bank’s last big meeting in April. The Fed showed more concerns about slower growth, a signal that the bank might wait longer than Wall expects to raise interest rates.
Monthly job creation, meanwhile, does show an economy growing much faster that the tepid first-quarter GDP suggests. The U.S. added a solid 223,000 jobs in April to show that hiring is back on track after a disappointing 85,000 gain in March.
But even the employment report reveals an economy not performing as well as it did in the second half of 2014. Average monthly job gains have tapered off to 194,000 in the first four months of 2015 from a breakneck 324,000 pace in the final three months of 2014.
Source: MarketWatch
