Sunday, May 31, 2015

The Obama 'Recovery' Stalls Again — U.S. Economy Shrank 0.7 Percent in First Quarter!

Yay progs!

At WSJ, "U.S. Recovery Stumbles Yet Again":

The U.S. economy shrank during the first quarter as another brutal winter highlighted the fragility of the nearly six-year-old expansion, a historically choppy stretch during which the nation has struggled to thrive in an uneven global environment.

Gross domestic product, the broadest measure of goods and services produced across the U.S., contracted at a 0.7% annual rate during the first three months of the year, the Commerce Department said Friday.

That was far worse than the agency’s initial estimate that showed 0.2% growth, marking an abrupt reversal from the prior nine months when growth surged and the economy appeared on the verge of a long-delayed breakout.

The economy has now contracted in three separate quarters since the recession ended in mid-2009, a series of disappointments unmatched since the expansions of the 1950s.

Harsh weather, a strong dollar and a labor dispute at West Coast ports appeared to be the biggest culprits this time, all sapping demand for American goods at home and abroad.

“When you’re this weak, little things can knock you off course, whether it’s the Arab Spring…or ‘Snowmageddon,’ ” said Dan Greenhaus, chief global strategist at brokerage firm BTIG. “We have an incredibly weak economy that’s susceptible to momentary interruptions.”

The Federal Reserve has viewed the first-quarter stumble as due largely to transitory factors—such as the stronger dollar—that will dissipate in coming months. The central bank is looking for signs of a rebound soon as it plots when and how quickly to raise short-term interest rates, which have been near zero since December 2008 to stir economic growth.

Economists generally expect the economy to bounce back this spring, as it did after first-quarter contractions in 2011 and 2014. But they 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.

Further complicating the outlook is that other signs point to the economy humming along at a steady, though modest, growth pace. Company layoffs are exceptionally low and hiring across the U.S. remains solid. Mortgage applications are up amid other signs of growing housing demand.

“We’re still growing at a relatively steady pace, although one that just doesn’t feel satisfying,” said Richard Moody, chief economist at Regions Financial Corp. “Six years into the recovery, we still really haven’t absorbed all of the idle capacity in the economy. When your underlying trend of growth is so slow, it doesn’t take much to just kind of stop the train.”

Some of the strongest headwinds facing the U.S. are tied to economic woes around the globe, including the U.S.’s biggest trading partners. Canada reported Friday that its economy unexpectedly contracted at a 0.6% annual pace in the first quarter. Mexican officials recently slashed their forecast for growth this year after reporting that the economy grew in the first quarter at the slowest pace in more than a year.

The stronger dollar, which makes U.S. goods more expensive abroad, also hasn’t helped. Friday’s GDP report showed that U.S. exports of goods fell by the most since early 2009, during the waning months of the recession. While a key measure of U.S. corporations’ after-tax profits grew 3.1% over the period, it wasn’t on pace to match the growth of the prior two years.

“We have a macro-slowdown around the world,” Stephen Angel, chief executive of industrial gas supplier Praxair Inc., told analysts this past week. “There’s less capital investment. China is decelerating…so there’s less proposal activity.”

His company, based in Connecticut, is one of many being hit by depressed oil prices. While the price of oil—around $60 a barrel—is up in recent months, it’s far from the 2014 peak of $107.26.

The oil-price drop has boosted consumers’ finances by lowering their gasoline bills, a development expected to boost the economy throughout this year. But the most dramatic effect thus far has been a drop in business investment, with energy companies holding off on drilling and equipment purchases as they deal with squeezed profits.

A measure of business spending on construction, machinery, and research and development fell at a 2.8% pace in the winter. That was the biggest decline since late 2009.

The strength of an economic rebound will hinge largely on the health of consumers. Consumer spending, representing more than two-thirds of overall economic output, grew at a 1.8% rate in the first quarter, far slower than the fourth quarter’s 4.4% growth. Household spending on long-lasting manufactured items was the weakest in nearly four years...