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U.S. Economy Grew 0.5% in First Quarter, Slowest Pace in 2 Years The Recovery’s Two Sides: Weak Growth Even as Hiring Surges
(about 3 hours later)
The American economy edged further into the slow lane last quarter, as consumers took their foot off the gas and businesses pulled back. The nation’s gross domestic product advanced at a mere 0.5 percent annual growth rate during the first quarter after a mediocre increase for the final quarter of 2015, the Commerce Department reported on Thursday, suggesting that the economy is stalled.
The 0.5 percent growth rate in the first three months of 2016, which the Commerce Department reported on Thursday, underscores a downshift that began late last year. But the job market, according to Labor Department figures released in recent months, appears to be at its healthiest point since the boom of the late 1990s.
While consumers eased up slightly on spending, business investment fell sharply, stung by lower outlays on equipment and infrastructure like factories and drilling rigs. Which picture is right?
The business pullback, driven in large part by the ongoing woes in the oil industry, shaved more than half a percentage point off the growth rate. Additional bumps in the road came from a weaker trade picture and the slow movement of big inventories accumulated last year. On one side of the equation, hiring and wages — of particular importance to the 95 percent of the labor force that already has a job — are moving firmly in the right direction. On the other, the economy’s expansion continues to be lackluster: The pace of growth in the first quarter was the slowest in two years.
The 0.5 percent growth rate in the first quarter of 2016 was the slowest quarterly rate of expansion in two years. Both yardsticks contain a measure of truth. And the explanation is the apparent lack of improvement in productivity — the output of individual workers — despite dazzling advances in Silicon Valley, America’s technological frontier, and a continuing economic recovery that is nearing its seventh anniversary.
For now, at least, many businesses, are finding it more advantageous to hire more workers than to invest in new technology or equipment to increase output and meet growing demand
In the short term, this could be seen as a positive, especially with millions of Americans just now coming back into the job market after being sidelined during and after the Great Recession.
But in the long term, this phenomenon threatens to undermine the nation’s prosperity, said Michael Gapen, chief United States economist at Barclays.
“Economists view productivity growth and technological change as driving improvements in standards of living over time,” Mr. Gapen said. “A permanent slowdown in productivity growth would suggest that living standards rise more slowly.”
He noted that productivity had been increasing at an annual rate of about half a percentage point over the last five years. That is well below the Internet-driven 2.5 percent gains recorded annually in the second half of the 1990s, and below the more typical 1.5 percent rate of productivity gains in previous decades.
“We can tell stories about why it’s so weak, but nobody really knows,” Mr. Gapen said. ““I think productivity growth can rebound, but the fear is that it won’t.”
Whatever the answer, it’s clear that businesses have grown much more wary of new investments recently, and the clearest evidence of that has emerged in the last two quarters.
Much of the recent downturn in business spending is a result of much lower prices for oil, metals and other commodities, and fears of a slowdown in China and elsewhere around the world that are putting a crimp on investment opportunities.
“It doesn’t look like there’s any danger of recession, but the global economy and commodities are weak,” said Kevin Logan, chief United States economist at HSBC. “The global commodity shock has affected growth in the U.S. in a way that was unexpected, especially in terms of the energy industry.”“It doesn’t look like there’s any danger of recession, but the global economy and commodities are weak,” said Kevin Logan, chief United States economist at HSBC. “The global commodity shock has affected growth in the U.S. in a way that was unexpected, especially in terms of the energy industry.”
Still, Mr. Logan said, “the consumer is fundamentally sound, as is the housing market.” Still, Mr. Logan said, “The consumer is fundamentally sound, as is the housing market.”
He added: “Things are O.K. domestically, with growth in sectors like leisure, health care and technology, and spending is moving along steadily.”He added: “Things are O.K. domestically, with growth in sectors like leisure, health care and technology, and spending is moving along steadily.”
In a separate report on Thursday, the Labor Department said initial claims for unemployment benefits last week rose by 9,000 to 257,000. Despite the increase, the number was slightly healthier than expected, and new jobless claims remained very close to lows last seen in the early 1970s. In a separate report on Thursday, the Labor Department said initial claims for unemployment benefits last week rose by 9,000 to 257,000. Despite the increase, the number was slightly smaller than expected, and new jobless claims remained very close to lows last seen in the early 1970s.
The first-quarter results reinforced what has become something of an annual economic rite in recent years — a weak first quarter, followed by optimistic predictions that a rebound was just around the corner. The first-quarter results reinforced what has become something of an annual economic rite in recent years — a weak first quarter, followed by optimistic predictions that a rebound is just around the corner. (The gross domestic product report on Thursday is the first of three estimates; subsequent revisions could move the number significantly higher or lower.)
In 2015, the economy barely grew early on, recovered its footing in the spring and summer, but finished the year with a mediocre growth rate of 1.4 percent in the fourth quarter.In 2015, the economy barely grew early on, recovered its footing in the spring and summer, but finished the year with a mediocre growth rate of 1.4 percent in the fourth quarter.
The optimists may be right that growth will pick up for the rest of 2016 as it did last year, but the trajectory of the economic recovery remains frustratingly uneven, nearly seven years after it began. And over all, the growth in the United States has been lackluster ever since the nation pulled out of recession in 2009. The optimists may be right that growth will pick up for the rest of 2016 as it did last year, but the trajectory of the economic recovery remains frustratingly uneven. And over all, the growth in the United States has been lackluster ever since the nation pulled out of recession in 2009.
Lately, however, a conundrum has emerged as evidence accumulates that plenty is also going right in the American economy. After a shaky start to this year, the stock market has rebounded and energy prices have stabilized, providing some comfort to the oil industry, which has undergone big cuts in hiring and investment in Texas, Oklahoma and other oil patch areas.
Even as the pace of expansion has slowed in the last two quarters, the economy has added an average of nearly 245,000 jobs a month over the same period, a healthy showing by just about any standard.
After a very shaky start to this year driven by unfounded fears of an impending recession, the stock market has rebounded and energy prices have stabilized, providing some comfort to the oil industry, which has had big cuts in hiring and investment in Texas, Oklahoma and other oil patch areas.
Recession fears, which dominated the headlines and fixated traders on Wall Street three months ago, have largely faded. Volatility in Europe and Asian markets has also eased.Recession fears, which dominated the headlines and fixated traders on Wall Street three months ago, have largely faded. Volatility in Europe and Asian markets has also eased.
In the United States, new claims for unemployment are running at the lowest pace since 1973, and after years of stagnation, wages are showing signs of life. In the United States, after years of stagnation, wages are perking up.
New research released earlier this month by ADP, which compiles payroll data from hundreds of thousands of corporate clients, showed wages rising at an annual rate of 4.6 percent last quarter for full-time employees who have been working for at least one year. In the last quarter of 2015, wages for this group rose 4.1 percent.New research released earlier this month by ADP, which compiles payroll data from hundreds of thousands of corporate clients, showed wages rising at an annual rate of 4.6 percent last quarter for full-time employees who have been working for at least one year. In the last quarter of 2015, wages for this group rose 4.1 percent.
While ADP’s figures show a bigger increase in wages than similar government metrics for the entire working population, the basic message from the data is the same: American workers are finally getting a raise, even if it still leaves many of them struggling to get by on take-home pay that, until the last year or so, has failed to keep up with the increased cost of living. While ADP’s figures show a bigger increase than similar government metrics for the entire working population, the basic message from the data is the same: As labor markets tighten, American workers are finally getting a raise.
“We have good momentum in terms of the job market,” said Ahu Yildirmaz, ADP’s head of research.“We have good momentum in terms of the job market,” said Ahu Yildirmaz, ADP’s head of research.
On Wednesday, Federal Reserve policy-makers put off any move to raise interest rates, in part because of the persistent weakness in growth. But in a statement after the meeting, they acknowledged crosscurrents in the economy. On Wednesday, Federal Reserve policy makers put off any move to raise interest rates, in part because of the persistent weakness in growth. But in a statement after the meeting, they acknowledged crosscurrents in the economy.
“Labor market conditions have improved further even as growth in economic activity appears to have slowed,” the Fed concluded, adding that household income, consumer sentiment and the housing sector all looked reasonably healthy.“Labor market conditions have improved further even as growth in economic activity appears to have slowed,” the Fed concluded, adding that household income, consumer sentiment and the housing sector all looked reasonably healthy.
Despite the overall improvement, there is plenty of pain in some corners of the economy.Despite the overall improvement, there is plenty of pain in some corners of the economy.
Factories shed nearly 50,000 jobs in February and March, wiping out all of the gains recorded last year. The proportion of Americans who are in the work force or are looking for a job remains depressed by historical standards, and more than six million workers are in part-time positions because they cannot find full-time work. Factories shed nearly 50,000 jobs in February and March, wiping out all of the gains recorded last year. The proportion of Americans in the active labor force remains depressed by historical standards, and more than six million workers say they are in part-time positions because they cannot find full-time work.
But for the winners in the American economy, be they individuals or companies, there is not much to complain about these days. But for the winners in the American economy, be they individuals or companies, there is a lot less to complain about these days.
“Since we launched four years ago, our business has been growing like a rocket ship,” said Bayard Winthrop, chief executive of American Giant, which makes sweatshirts, T-shirts and other types of activewear at mills in North Carolina.“Since we launched four years ago, our business has been growing like a rocket ship,” said Bayard Winthrop, chief executive of American Giant, which makes sweatshirts, T-shirts and other types of activewear at mills in North Carolina.
American Giant is focused on casual, comfortable clothes, and eschews stores to use direct sales through its website to attract customers. “Made in U.S.A. really appeals to people,” Mr. Winthrop said. American Giant is focused on casual, comfortable clothes, and eschews stores in favor of direct sales through its website. “Made in U.S.A. really appeals to people,” Mr. Winthrop said.
His company has more than 300 employees and “we are hiring sewers as fast as we can,” Mr. Winthrop said. “Growth has not been our problem.”His company has more than 300 employees and “we are hiring sewers as fast as we can,” Mr. Winthrop said. “Growth has not been our problem.”
The gross domestic product report on Thursday is the first of three estimates from the Bureau of Economic Analysis; subsequent revisions could move the number significantly higher or lower.