US economy: One-time effects once again muddy the first-quarter tally

The most recent batch of data released on the Q1 status of the US economy was once again decidedly on the weak side, and on that basis growth for the year was projected to be only 0.7 percent. This contrasts with clear growth of 2.1 percent in the fourth quarter of 2016. President Trump will presumably read the weak start to the year as indicated by the latest data on gross domestic product (GDP) as proof of the poor state of the US economy. In our opinion, it is more important to point to the persistent difficulties involved in making seasonal adjustments to the figures for this very large country, with its highly different climatic zones; these impair the statistical evaluation of economic momentum. The statistics agency has repeatedly stated that in particular the January-to-March period is affected by this difficulty and improvements to data gathering are still ongoing. However, the latest brace of GDP data has been weakened not only by climatic factors but also by one-time effects, as a result of which above all private consumer spending, the customary “guarantor of growth”, delivered only a very weak positive contribution to growth.

Consumer sentiment is lodged at an all-time high and, along with the good job situation, indicates by contrast that in the current and in the coming quarters we can expect to see private consumer spending clearly stimulating growth more strongly. For this reason, we continue to expect the US economy to post growth for the year of around two percent. Our assessment, which some may feel is decidedly optimistic given the latest data, is borne out by the ongoing positive investment trend. Investments provided a positive contribution to growth for the third consecutive quarter, and were spread in equal part across outlays for plant and equipment, for house building, and for commercial construction. The overall quite positive economic sentiment also suggested growth rates will be higher again in the coming months.

The dampener delivered by the weather in the first quarter was the result of unusually mild temperatures, which led to expenditure on electricity and gas being comparatively low for this season. Another negative effect that even more noticeably squeezed private consumer spending: dwindling car purchases. After buoyant sales figures in the prior three quarters, the data on retail sales had already intimated that a correction was on the cards. The most growth was lost because of decidedly restrained increases to inventory, which on their own slashed 0.9 percentage points off the pace of economic growth. As if these were not enough negative factors, the public sector also scaled back spending, which cut another 0.3 percentage points off growth. At least at the local authority level, this trend may be connected to the Presidential election last autumn, while at the federal level lower defence spending decelerated growth. The initial estimate for GDP data shows foreign trade at least not to have contributed negatively to growth, but it also made no positive impact. At any rate, exports were increased more strongly than imports. Nevertheless, these figures are hardly likely to suffice to dispel President Trump’s reservations toward free world trade and persuade him not to renegotiate the NAFTA agreement with Canada and Mexico.

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