US Economy
US economy stumbles again in 2015
By Michael Hennigan, Finfacts founder and editor
Jun 1, 2015 - 2:01 PM

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On Friday it was reported that GDP (gross domestic product, the broadest measure of goods and services produced across the US), shrunk at an annual rate of 0.7% in the first quarter of 2015 compared with an initial estimate of -0.2%. Also last week, UK GDP was not revised up from an initial weak level of 0.3%; Canada's economy shrunk at a 0.6% annualised pace in the first quarter of 2015 while the Swiss economy contracted 0.2% compared with the previous quarter.

Different reasons — bad weather, strong dollar and a port strike in the US; slowing momentum in the UK; the fall in oil price in Canada and the strong Swiss franc were among the explanations but the health of the US economy is the important concern given its role in global growth. Last month the Bank of Mexico lowered its forecast for economic growth in 2015, citing a drop in the country’s oil production and more modest expectations for the US economy.

The Wall Street Journal says that economists have "warned growth will likely remain modest, in line with the roughly 2% overall pace of recent years. The first half of 2015 is shaping up to be one of the weakest six-month stretches of the expansion, with economists predicting annualized growth of between 2% and 3% during the current quarter. By comparison, the economy grew more than 3% a year on average between 1983 and 2007."

While hiring and mortgage applications have been strong in recent months, consumer spending, accounting for than two-thirds of overall economic output, grew at a 1.8% rate in the first quarter, compared with the fourth quarter’s 4.4% growth while household spending on durable goods — expected to last at least 3 years — was the weakest in nearly four years.

On Friday the University of Michigan final May consumer sentiment index was at a six-month low of 90.7 after the index hit an 11-year high of 98.1 in January.

The strong dollar and weak overseas demand is also hitting US prospects.

Richard Moody, chief economist at Regions Financial Corporation commented on Friday: "Many analysts seem tempted to simply brush aside the contraction in real GDP in [the first quarter] as a function of transitory factors —  harsh winter weather, the port strike — that will have no lasting effect. We caution against treating the first-quarter GDP data so cavalierly, as doing so overlooks the more structural forces that weighed on the economy in [the first quarter] — the ongoing pullbacks in job counts and investment in the energy sector and related industries, still uncertain global growth prospects, and the stronger US dollar.”

The Bureau of Economic Analysis reported on Friday: "Real nonresidential fixed investment (business investment) decreased 2.8% in the first quarter, in contrast to an increase of 4.7% in the fourth. Investment in nonresidential structures decreased 20.8%, in contrast to an increase of 5.9%. Investment in equipment increased 2.7%, compared with an increase of 0.6%. Investment in intellectual property products increased 3.6%, compared with an increase of 10.3%. Real residential fixed investment increased 5.0%, compared with an increase of 3.8%.

Real exports of goods and services decreased 7.6% in the first quarter, in contrast to an increase of 4.5% in the fourth. Real imports of goods and services increased 5.6%, compared with an increase of 10.4%."

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