The economy
Growth takes a knock—from nature, as much as anything
WASHINGTON, DC
THIS was supposed to be the year when a strong, durable American recovery finally kicked in. A volatile 2010 closed with a respectable fourth-quarter growth performance. The economy expanded at a 3.1% annualised rate from October to December, with more acceleration expected. Early indicators in the new year looked impressive, too. Industrial production grew vigorously during the first quarter, and the stock-market rose over 4%.
Most encouraging of all, labour markets have at last grown steadily enough for long enough to start to bring down the stubborn unemployment rate. Private-sector employers added 564,000 workers from January to March. In February the unemployment rate fell below 9% for the first time in nearly two years. At the end of January Macroeconomic Advisers, a consultancy, forecast an annualised first-quarter growth rate of 4.1%.
Now, however, a much gloomier view prevails, accompanied by a wave of revisions to the figures. Macroeconomic Advisers expects an annualised first-quarter growth figure of just 1.5%. Economists at JPMorgan think the growth rate will be 1.4%. Others whisper that growth below 1% is not out of the question. The advance GDP estimate will be released on April 28th, and everyone expects a dismal figure.
There are many reasons for it. The year’s early economic energy was dampened by a spell of nasty winter weather, which depressed consumer spending and January employment growth. Winter storms cut perhaps half a percentage point off growth from January to March, according to some estimates. Oil prices, which rose steadily as growth picked up in the fourth quarter, went back above $100 a barrel when unrest in Libya cast uncertainty over already tight global supplies. The average retail price of petrol in America rose 53 cents, or about 17%, during the first quarter of the year.
Dearer oil may have cost the economy another half a percentage point in output. The drumbeat of crisis around the world sounded elsewhere as well. The catastrophic earthquake, tsunami and nuclear disaster in Japan depressed global markets in March, and may have shaved a few tenths of a percentage point off America’s growth. Confidence probably suffered from renewed debt-crisis fears in Europe. Perhaps more important, contractionary policy in Europe and emerging Asia chipped away at global demand for American exports. In February, the latest month for which data are available, the trade deficit shrank less than expected.
If GDP growth does come in at around 1.5% for the quarter, it will almost certainly understate the economy’s true performance. Many of the drags on first-quarter output are transitory. As the year proceeds, firms will recover some of the ground lost to snowstorms and falling confidence from crises in North Africa and Japan. But the gloomier figures are a reminder, if any were needed, that the road to recovery is not a smooth one.
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