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Why Did US GDP Growth Slow Down in 1Q16?

What Do Recent Indicators Have to Say about the Global Economy?

(Continued from Prior Part)

US GDP growth at 0.5% in the first quarter of 2016

The US economy (QQQ) (SPY) (VOO) (IWM) saw GDP (or gross domestic product) growth of 0.5% in the first quarter of 2016 as compared to the 1.4% expansion in the fourth quarter of 2015, according to data provided by the US Bureau of Economic Analysis. However, this was below the market expectations of 0.7% growth. It was the weakest performance in the last two years. In the first quarter of 2014, the US economy contracted 0.9%.

Why did the GDP fail to meet market expectations?

The weaker movement of the US GDP growth indicates that American consumers controlled their spending and demand also slowed down in the first quarter. The lower manufacturing PMI and the factory output data for March already warned that the first quarter economic growth would be weaker. Most of the manufacturing companies tighten their process as a result of volatile global financial market conditions. The various oil and gas companies reduced their capital expenditure due to lower crude oil prices. These industries saw a massive job cut due to lower commodity (DBC) and crude oil prices (USO) (UCO).

Household purchases rose by 1.9% in the first quarter of 2016 as compared to 2.4% in the fourth quarter of 2015. Weaker household spending is one of the major reasons behind the poor performance of GDP, as household purchases account for 70% of the economy.

However, the weekly jobless claims showed a huge improvement for the week ended April 16. The unemployment claims fell by 6,000 to 247,000 claims for the week ending April 16. This was below the market’s expectation of 263,000. Last week’s level was the lowest level since November 24, 1973, when it was 233,000. The fall in unemployment claims indicated that the employers are still positive on the country’s demand outlook.

In the next part of this series, we will analyze the change in weekly US crude oil inventories.

Continue to Next Part

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