US economic growth shuddered to a halt in Q1 2014
making the first quarter one of the weakest paces of the five-year recovery as
poor weather appeared to have stalled business investment while weak overseas demand
Real gross domestic product -- the output of goods and services produced by
labour and property located in the United States -- increased at an annual rate
of 0.1% 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 at an
The Bureau emphasised that the first-quarter advance estimate released today is
based on source data that are incomplete or subject to further revision by the
source agency. The "second" estimate for the first quarter, based on more
complete data, will be released on May 29, 2014.
Business spending on items such as equipment,
buildings and intellectual property fell at a 2.1% pace in the first three
months of the year. That was the first decline in a year and reversed in part
the 5.7% gain the prior period. The slowdown in investment coincided with weaker
hiring during the quarter. US exports fell at a 7.6% pace in the first quarter.
That was the largest fall since the recession ended in mid-2009.
“If health-care spending had been unchanged, the
headline GDP growth number would have been -1.0%,” said
Ian Shepherdson, chief economist at Pantheon Macroeconomics.
First-quarter GDP highlights: The slowdown
in real GDP growth reflected:
A downturn in exports: Exports of
industrial supplies and materials as well as foods, feeds, and beverages
declined after increasing in the fourth quarter.
A downturn in business investment:
Spending on transportation equipment fell after rising significantly in the
fourth quarter. Spending on computers and peripherals also turned down.
A larger decrease in inventory
investment: Inventory investment by retail trade companies (mainly motor
vehicles dealers) declined significantly after an increase in the fourth
A slowdown in consumer spending, mainly in nondurable goods,
notably clothing and footwear as well as food and beverages. These movements
were partly offset by faster growth in utilities and healthcare.
In contrast, federal government spending turned up, and imports declined
after increasing in the fourth quarter.
Personal income and personal saving: Real disposable personal income
(DPI)—personal income adjusted for inflation and taxes—increased 1.9% in the
first quarter, compared with 0.8% in the fourth quarter of 2013. Personal saving
as a% of current -dollar DPI was 4.1%, compared with 4.3%
Prof Peter Morici of the Smith Business School at
the University of Maryland commented: The Commerce Department
reported GDP grew at a disappointing 0.1% annual rate in the first quarter, less
than 2.6 and 4.1% recorded the prior two periods. Overall, it appears 2014 may
not be the breakout year President Obama and many Wall Street forecasters
predicted, boding poorly for jobs creation.
A colder than normal winter slowed consumer spending, somewhat, and business
investment in new equipment, structures and information technology plunged;
however factors other than weather dragged on growth too.
Sequestration and the longer-term shift in federal spending from activities that
support growth-infrastructure, research and development and the like-toward
social welfare-health care subsidies, food stamps and the like-are depressing
federal and state spending's contribution to investment and productivity and
ultimately, dragging down aggregate demand and growth.
The harsh winter slowed residential sales and construction, and recent builder
surveys indicate new home purchases may not rebound as strongly this spring and
summer as once expected.
Young, first time buyers are caught in a vice: lower incomes than their parents
enjoyed when entering the labor force and heavy college debts. Consequently, as
many finally leave their parents' homes to set up households, more chose
apartments. Construction costs associated with these are less than the suburban
homes their parents might have purchased, and create fewer multiplier effects in
the furniture, appliance and home improvement sectors. Also, apartment activity
in existing cities and suburbs likely instigates less complimentary commercial
development than new suburban subdivisions.
Simply, it's time for the Obama Administration to pay the piper for using
student loans to prop up demand and keep young adults out of the job market to
inflate growth and suppress the unemployment rate over the last five years.
Fewer housing starts and more focus on lower cost units do not bode well for
The boost to consumer spending provided by recovering existing home values in
2013 should slow. Speculators are purchasing fewer foreclosed properties, and
higher mortgage rates raise monthly payments and reduce the prices buyers can
Similarly, monthly tallies of new vehicle purchases hit a plateau last summer,
when those averaged an annual pace close to 16m units. Since then sales have
bounced around and not much improved. Now those are likely to rise again, but
too much of Detroit's recent profitability was premised on replenishing a
vehicle fleet that grew old and too fuel inefficient during the long financial
crisis, easier credit conditions than are likely to persist going forward, and
high mark ups on option-laden vehicles. Those have run their course, and recent
downward pressures on transactions prices and profits will persist, limiting the
auto sector's contribution to growth.
Preliminary data indicate the inflation adjusted trade deficit likely increased
sharply in the first quarter. The cheaper yen and yuan engineered by Tokyo and
Beijing, along with similar currency policies elsewhere in Asia, disadvantage
US manufacturers across the board and limit jobs creation. Absent a more
credible strategy from the Obama Administration to counter this protectionism,
Asian governments are happy to export unemployment to the United States.
Similarly, the Obama Administration's unwillingness to approve drilling permits
off the Atlantic and Pacific coasts and in the Eastern Gulf exacerbates US
import dependence and increases global environmental risks by concentrating
drilling too much in developing countries. These increase the US trade deficit
and tax GDP growth and employment.
Halving the trade deficit by countering currency manipulation and developing
more US oil could easily add 1 to 2 percentage points to annual US GDP growth,
and create 4 to 5m more jobs over 3 years.
Overall, consumer spending surged to 3.3% in the fourth quarter but pulled back
to about 3.0% in the first quarter, and it may not improve a lot on a sustained
basis for a long time. Similarly, surging imports and slow growing exports will
likely plague the economy through the balance of this year and next.
Coupled with constraints on growth in housing and autos, those factors may keep
GDP growth pinned below 3% and jobs creation close to 200,000 per month, instead
of the 350,000 needed to lower unemployment to pre-financial crisis levels."