Why the US Economy May Be Stronger Than You Think (Part 2 of 4)
Worried about the state of the economy after a string of soft data? Jeff Rosenberg explains why things are likely to get better.
Don’t count out the U.S economy just yet.
While it’s true that economic performance in the U.S. broadly disappointed in the first quarter — with the exception of jobs data — temporary factors such as colder than seasonally anticipated weather, as well as the West Coast ports shutdown and the collapse in oil-related investments presented one-off events that temporarily depressed output in the quarter.
But this pattern of weak first-quarter data has been the case for most of the past five years, as shown below. Average gross domestic product (or GDP) has come in at just 0.6% in the first quarter from 2010 to 2014, substantially lower than in other quarters.
Market Realist –
US GDP (gross domestic product) growth rate missed expectations and fell to a scant 0.2% in 1Q15. The economy has almost stalled to a halt in the first quarter after robust growth for most of last year. The gloomy figure could cast doubts on the US growth story, one of the few remaining bright spots in the developed world (EFA). The economy grew at 2.2% last quarter and registered an annual growth of 2.4% for 2014.
US markets ended yesterday lower on economic data concerns. The S&P 500 (IVV) ended the day by falling 0.4% to 2,106.8. The Dow Jones Industrial Average (DIA) declined 0.4% to 18,035.5, while the Nasdaq Composite (QQQ) declined 0.6% to 5,023.64. Ten-year Treasury yields (TLT) (IEF) briefly dipped below 2% before climbing to 2.07%.
Do weak economic data indicate an impending slowdown for the US economy? We believe that writing off the US economy based on the current GDP estimate may be an uncalled for and hasty move.
The US GDP growth rate for the first quarter has historically been below average. Just last year, the first quarter GDP growth came in at an abysmal -2.1%. The average growth rate for the first quarters between 2010 and 2014 is only 0.6%. You can see this in the above graph.
Many factors seem to suggest that the slowdown in 1Q15 has more to do with seasonal headwinds than an economic downturn. We’ll look at these in the next part of this series.
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