After the deceleration of the US economy in the fourth quarter, the very weak first quarter GDP growth number have come as a surprise. It is expected that the economy will rebound in the remainder of the year with again above average growth in the second and the third quarter. The positive labour market and consumer indicators point at such a likelihood. It is important to highlight that private household consumption in the first quarter was relatively solid but that other factors seem to have negatively influenced the weakness in growth. The obvious reasons for the low GDP number were the cold weather, the West Coast port strike and the swift appreciation of the US dollar. Hence, the negative impact from exports and investments has been clear.
In terms of numbers, the GDP grew by a seasonally adjusted annualized rate (SAAR) of 0.2% q-o-q. Personal consumption expenditures rose at a relatively solid SAAR of 1.9% q-o-q. Fixed investments and exports, in particular, were driving down the GDP with declines of -2.0% and -7.2%, respectively. These two were the main factors to be considered. There are certainly transitional factors to these developments, but the next several months may provide some more clarity as to the magnitude to which they were responsible for the weak growth. In this regard, it is also important to highlight that the energy sector had some influential negative impact. Investments into mining, shafts and wells fell by 48.7%, an impressive decline after the past month’s announcements of considerable capex reductions in the energy sector.
While labour markets indicators were mixed in the past months, there has been a general recovery. Probably also there have been negative factors from the past months which may have been only transitory. The unemployment rate fell to a new low of 5.4%, the lowest since mid-2008. Importantly, job additions in April recovered from a very weak level in March. Non-farm payrolls increased by 223,000, after an increase of only 85,000 in March, a number that was even significantly revised down from previously 126,000. Also in this area, the capex reductions in the energy sector have become obvious. Jobs in mining and logging fell by 48,000 since the beginning of the year. Positively, the share of long-term unemployed improved again to 29%, from 29.9% in March, the lowest level since June 2009.
The housing market continues recovering. Monthly average house prices rose more than 5% in the months from December to February. Prices increased again by 5.4% yo- y in February, as reported by the Federal Housing Finance Agency. Positively, existing home sales have also continued improving, rising by 10.4% y-o-y in March, after 4.9% y-o-y in February and 3.2% y-o-y in January and 4.3% y-o-y in December.
In line with the latest dip in the economy, consumer confidence declined from very high levels in the past months. The conference board index stood at 95.2 in April, after 101.4 in March. As a sign of some stabilisation of the recent deceleration, the purchasing manager’s index (PMI) for the manufacturing sector, as provided by the Institute of Supply Management (ISM), remained at 51.5 in April. Also, positively, the ISM for the services sector, which contributes more than 70% to the economy, rose to 57.8 in April, after already a high level of 56.5 in March. This marks the highest level this year.
The GDP growth forecast for 2015 has been consequently revised down from 2.9% to 2.6%, given the weak first quarter number, which could even turn negative in the second estimate at the end of May, given the weak trading numbers. Hence, this forecast assumes that there will be an above 3% growth recovery in the second and the third quarter. The weakness of the first quarter is considered to be temporary. Therefore, this year’s growth forecast is still higher than the final growth estimate of 2.4% in 2014, as provided by the Bureau of Economic Affairs (BEA). Uncertainties remain and the economic activity will need close monitoring, given the recent slowdown. Revisions to the even low first quarter output numbers might also force further downward revisions of this year’s growth in the near future.