U.S. economy back on track, but first quarter was nasty

Last Updated on January 24, 2019

The U.S. economy saw a dismal first quarter and the bad news is not yet over. An updated estimate by the Commerce Department showed gross domestic product deteriorated at an annual rate of 2.9 per cent in the first three months of 2014, a stark revision that forced economists to downgrade their forecasts of how much the world’s largest economy will grow this year.

More recent evidence shows the economy is back on track: Hiring, retail sales, new-home construction and consumer confidence all rebounded smartly this spring. A separate government report recently showed inventories for non-defence durable goods jumped 1 per cent in May after a 0.4-per-cent increase in April.

The Commerce Department initially reported the GDP growth simply stalled in the first-quarter. A second estimate said GDP shrunk at an annual rate of 1 per cent, the first contraction since first-quarter of 2011. The final reading shows the U.S. endured its biggest economic collapse since the Great Recession in 2009.

America’s economy expanded at annual rates of 4.1 per cent in the third quarter of 2013 and 2.6 per cent in the fourth. Wall Street analysts had predicted the first-quarter estimate would be revised lower, but only to a contraction of 1.8 per cent. Equity markets rose, evidence that traders are more focused on signs of future growth.

Like a race car coming out of a pit stop, the U.S. economy is reaccelerating. In the winter, personal consumption expenditures grew at an annual rate of 3.3 per cent in the fourth quarter, and exports surged 9.5 per cent. Non-residential fixed investment advanced by 5.7-per-cent. Freezing temperatures and relentless snow storms slowed down any recovery. Consumption gains slowed to 1 per cent in the first quarter and exports and investment plunged to annual rates of 8.9 and 1.2 per cent respectively.

The U.S. economy now is growing again. Economists at National Bank Financial, PNC Financial Services, and Deutsche Bank, among others, say GDP likely grew at an annual rate of 4 per cent in the second quarter. State and local governments in the U.S. are starting to spend again, removing a drag on the economy. Steady hiring should buoy household spending and a stronger global growth should bolster exports.

But it’s possible the sustained surge in economic activity that usually follows recessions won’t come this time. According to Hamilton Place Strategies, a consultancy based in Washington, the average annual growth rate of the current expansion is 2 per cent, slower than the 3.2-per-cent average pace in economic expansions since 1980.

Source: The Globe And Mail