No, the US economy isn’t about to slip back into recession
AEIdeas
Wall Street economists expected the first quarter to be a weak one for the US economy, but not quite this weak. Real gross domestic product expanded at just a 0.1% annual rate, according to the Commerce Department. That’s the slowest pace since the fourth quarter of 2012, and markedly slower than the 1.2% consensus forecast. The new consensus: blame Mother Nature and look forward to a much better second quarter. RDQ Economics:
If any report shows that consumer spending does not drive economic growth, it is this one. Consumer spending barely slowed to 3.0% inflation-adjusted growth in the first quarter from 3.3% in the fourth quarter, yet real GDP growth plunged to 0.1% from 2.6%. We doubt growth was as slow as indicated by the first release of GDP since private-sector hours worked rose 1.6% in the first quarter (and self employment showed a strong gain as well) and industrial production jumped 4.4% in the quarter.
In addition, there were likely extensive weather effects holding down activity. We do not take this report as a serious representation of the state of growth in the economy. Business equipment spending looks poised to rebound in the orders data and housing is expected to pick up. We believe that real growth will run ahead of 3% over the balance of the year.
And this from Capital Economics:
The unexpectedly weak 0.1% annualised gain in first-quarter GDP growth, which was markedly below the consensus forecast of a 1.2% gain, was principally due to the unusually severe winter weather. … The difference between the actual outturn and our own 1.7% estimate was principally due to an unexpected 5.5% decline in investment in equipment and the complete absence of any rebound in government spending after the Federal shutdown in the fourth-quarter of last year.
At 3.0%, consumption growth was actually stronger than we had expected, bolstered by a 4.4% jump in spending on services. The latter is due to the expansion of healthcare provision under the Affordable Care Act. That will generate another big gain in spending at the start of the second quarter too. Durable goods consumption increased by only 0.8%, but that is largely because the weather hit sales of motor vehicles in January and February. Remember that auto sales rebounded to a multi-year high in March. …
Finally, after contracting by 5.2% in the final quarter of last year, government spending declined by a further 0.5% in the first quarter of this year. Most disappointingly, State and local government spending fell by 1.3%. As the Federal tightening fades, we expect the public sector will start adding to GDP growth soon. …
We anticipate that second-quarter GDP growth will rebound to 3.5% and we don’t expect these figures to affect the pace of the Fed’s QE taper, particularly not when conditions in the labour market appear to be strengthening.
One more, JPMorgan:
Real consumption came out stronger than expected, and there was less of a drag from inventories than we were anticipating, but basically all of the other main components of GDP were weaker than expected in today’s report. Despite the disappointing growth in 1Q, there are still reasons to look for growth to accelerate in the second quarter, though at this point it is still pretty early to determine how well the 2Q forecast for 3.0% real GDP growth is tracking. It looks like most of the inventory correction will be contained in the first quarter, and the weather should become more favorable for growth as it normalizes after an unusually harsh winter, and many of the economic indicators we track started improving late in 1Q or early in 2Q.
How does the economy typically respond after a weak, but positive GDP quarter? It varies. After that weak 4Q 2012, GDP growth averaged 1.8% over the next two quarters. After 0.3% growth in 1Q 2007, growth averaged 2.9% over the next six months. A 0.2% 4Q 2002 was also followed by 2.9% growth the subsequent two quarters. Then again, weak quarters in late 1990 and 2000 were quickly followed by recessions within six months. This time around, however, odds are growth will accelerate — weather permitting.
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