US Growth Stalls

The US Bureau of Economic Analysis (BEA) announced today that,

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the “advance” estimate released by the Bureau of Economic Analysis.  In the fourth quarter, real GDP increased 2.6 percent.

This flatline growth number is in stark contrast to the median forecast of 83 economists surveyed by Bloomberg, which called for a 1.2 percent increase for the first quarter.

Bloomberg writes in a confusingly titled report – Dow Hits Record as Fed Trims Stimulus as Economy Improves

The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc. Another report today showing a surge in regional manufacturing this month adds to data on retail sales, production and employment that signal a rebound is under way as temperatures warm.

Here’s is the BEA table of real GDP, along with the advanced estimates for the first quarter 2014 (click to enlarge).


The large negative slump in investment in equipment (-5.5) indicates to me something more is going on than bad weather.

Indeed, Econbrowser notes that,

Both business fixed investment and new home construction fell in the quarter, which would be ominous developments if they’re repeated through the rest of this year. And a big drop in exports reminds us that America is not immune to weakness elsewhere in the world.

Even the 2% growth in consumption spending is not all that encouraging. As Bricklin Dwyer of BNP Paribas noted, 1.1% of that consumption growth– more than half– was attributed to higher household expenditures on health care.

What May Be Happening

I think there is some amount of “happy talk” about the US economy linked to the urgency about reducing Fed bond purchases. So just think of what might happen if the federal funds rate is still at the zero bound when another recession hits. What tools would the Fed have left? Somehow the Fed has to position itself rather quickly for the inevitable swing of the business cycle.

I have wondered, therefore, whether some of the pronouncements recently from the Fed did not have a unrealistic slant.

So, as the Fed unwinds quantitative easing (QE), dropping bond (mortgage-backed securities) purchases to zero, surely there will be further impacts on the housing markets.

Also, China is not there this time to take up the slack.

And it is always good to remember that new employment numbers are basically a lagging indicator of the business cycle.

Let’s hope for a better second and third quarter, and that this flatline growth for the first quarter is a blip.