3

Is the U.S. economy in for a spring slowdown?

Analysts dissect the GDP release and make predictions


 

To recap:

  • The U.S. economy expanded by 2.5 per cent of GDP annualized in the first three months of the year, below the consensus forecast of three per cent growth but still a much stronger performance than the 0.4 per cent gain registered in the fourth quarter of 2012.
  • Government spending cuts were the main drag on the economy, shaving eight percentage points off growth, meaning that GDP would have otherwise expanded by 3.3 per cent. The sweeping federal spending cuts known as sequester weren’t expected to take effect until late March or early April, but some government agencies—particularly the defense department—seem to have trimmed their expenditures preemptively. As more federal agencies follow suit, government spending will likely continue to weigh on the recovery in the coming months.
  • Consumers, on the other hand, were the main propellers of growth. Spending by American families grew by 3.2 per cent, above the 2.8 per cent expected. However, analysts believe some of that activity reflects a one-time bounce-back after Hurricane Sandy, which ravaged the north-eatsern U.S. late last year.
  • Business investment growth slowed to 2.1 per cent from 13.1 per cent in the previous quarter, but residential investment leaped forward by 12.6 per cent, the second consecutive double-digit increase in six months.
  • International trade was a source of drag, with imports outpacing exports and subtracting half a percentage point from growth.

What the analysts are saying:

  • Consumers aren’t going to be able keep up with the rhythms of the January-March quarter, TD’s James Marple noted. Though Americans initially seemed to shrug off the end of a payroll tax cut that kicked in at the beginning of the year, lower take-home pay has depressed household saving rates. Efforts to bring family budgets back on track will likely slow spending over the next three months. Still, the recovering housing market remains a big positive for American consumers.
  • Today’s release could make the U.S. a poster child of the anti-austerity movement. “Showing how fiscal tightening can slow growth, analysts stateside no longer have to look across the pond to Europe,” CIBC’s Andrew Grantham wrote. TD noted the U.S. federal budget deficit hasn’t shrunk this fact since the demobilization following WWII.
  • There’s little question that growth will slow in the second quarter RBC’s Paul Ferley wrote. In addition to the expected impact of the sequester, the recovery was already showing signs of wavering in March, with activity in the labour market and manufacturing weakening. However, the bank expects the economy to rebound in the second half of the year.


 
Filed under:

Is the U.S. economy in for a spring slowdown?

  1. Therefore we are still approaching the death spiral but only at a slower rate.

    • Where is the way out?
      You know my answer.
      Global American Civilisation.

  2. The header should read “Is the US economy in for an ‘unexpected’ spring slowdown?” Journolister HQ is going to be on your backs otherwise.

Sign in to comment.