Source: Scrap Monster
The U.S economy recorded its best first quarter performance in four years, growing by 3.2 percent from January to March, according to the Bureau of Economic Analysis.
In recent years, the first quarter has tended to be relatively weak, with harsh winter weather in parts of the country often blamed for less than robust growth. This year’s performance, though, exceeded expectations and was the best to start the year since gross domestic product (GDP) expanded by 3.3 percent in Q1 of 2015.
“The increase in real GDP in the first quarter reflected positive contributions from personal consumption expenditures, private inventory investment, exports, state and local government spending, and nonresidential fixed investment,” the BEA reported. “Imports, which are a subtraction in the calculation of GDP, decreased. These contributions were partly offset by a decrease in residential investment.”
Since April 2018, the economy has recorded quarterly growth of 4.2 percent, 3.4 percent, 2.2 percent and, now, 3.2 percent.
President Donald Trump boasted that the “GDP is an incredible number.”
“But remember this,” he added. “We have great growth and also very, very low inflation. Our economy is doing great. Number one in the world. We’re the number one economy right now in the world and it’s not even close.”
The first quarter number appears to have quieted some pessimists and quelled concerns that negative growth could be looming. For example, an economist with Macroeconomic Advisers, a forecasting firm, told The New York Times, “The angst has settled, and the economy has come back. I just can’t point to anything now that’s going to push us into recession.”
Some people are giving the Federal Reserve some credit for the expansion. The Fed has steadily increased rates during the past two years, and multiple hikes were expected in 2019, something that Trump has strongly advocated against. But with Fed Chairman Jerome Powell pledging in January that the central bank would be “patient as we watch to see how the economy evolves” and the Federal Open Market Committee reiterating that “patient” stance multiple times since then – most recently following its April 30-May 1 meeting – investors have become more confident that the Fed will allow the economy to grow and not apply the brakes this year. The target range for the federal funds rate has remained 2.25-2.5 percent since December.
The Fed has been able to hold back because, as Trump noted, even as the economy has grown, inflation has remained low. Inflation (excluding food and energy) in the first quarter was 1.7 percent, according to the Federal Reserve Bank of St. Louis, and apart from hitting 2 percent in the third quarter of last year and 2.1 percent in the first quarter of 2012, it has remained below the Fed’s target of 2 percent since the end of the Great Recession.
The Fed noted after its most recent meeting that the “labor market remains strong,” and the Bureau of Labor Statistics confirmed that assessment two days later on May 3 when it announced that the economy exceeded expectations by creating 263,000 jobs in April, pushing the unemployment rate down to 3.6 percent, the lowest level in half a century. The Washington Post reported that, “The United States has more job openings than unemployed people” and “Business leaders increasingly say their No. 1 challenge is finding enough people to fill job openings.”
The tight labor market appears to finally be pushing pay higher. Year-over-year wage growth reached 3.4 percent in March and it has been above 3 percent since July of last year, according to the Economic Policy Institute. Prior to that stretch, wage growth during the economic recovery of the past decade rarely reached even 2.5 percent.
Consumer confidence remains strong, with The Conference Board’s Consumer Confidence Index coming in at 129.2 in April, up 5 points from March. (The index’s baseline is 100 in 1985.) “Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support consumer spending in the near-term,” the board’s senior director of economic indicators said.
Confidence in the manufacturing sector appears to be not quite as strong, at least according to the Institute for Supply Management’s Purchasing Managers Index, which in April recorded its lowest rating in about 2½ years – 52.8. The index had been above 60 as recently as August, but it has been slipping since then. Of 18 manufacturing industries surveyed, 13 reported growth.
“Comments from the panel reflect continued expanding business strength, but at the softest levels since the fourth quarter of 2016,” the chairman of the institute’s Manufacturing Business Survey Committee said.
Housing starts in March were largely unchanged from February but were 14.2 percent below the March 2018 level, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales fell almost 5 percent from February to March, the National Association of Realtors reported, though the association’s chief economist said it was “not surprising to see a retreat after a powerful surge in sales in the prior month. Still, current sales activity is underperforming in relation to the strength in the jobs markets. The impact of lower mortgage rates has not yet been fully realized.”
The Dow Jones Industrial Average closed at 26,592.91 on April 30, up 14 percent on the year. The S&P 500 Index ended April at 2,945.83, recording year-to-date gains of 17.51 percent.
The dollar, as of the end of April, was trading at 0.89 euros, 0.77 pounds, 111.43 yen and 6.74 yuan.
The American economy has not been this strong since at least the tech boom of the 1990s. Yet the Trump administration, which can justifiably claim that its policies of cutting taxes and regulations have significantly contributed to the current growth, has inexplicably made itself the biggest threat to continued expansion. Trump continues to push an anti-trade agenda, most recently imposing tariffs on an additional $200 billion of Chinese goods, a move that led China to retaliate by targeting $60 billion in American imports with tariffs. While Trump has insisted that Chinese firms will pay the levies imposed by his administration and that there is “no reason” to think that Americans’ purchasing power will be affected, this claim is somewhere between disingenuous and economically naïve. His own top economic adviser, Larry Kudlow, acknowledged as much on “Fox News Sunday” on May 12, saying, “Both sides will pay. Both sides will suffer for this.” And the suffering might increase. China has vowed that it will “never surrender to external pressure” and Trump has expressed a willingness – even an eagerness – to broaden the tariffs to cover all Chinese imports, which totaled $540 billion last year. Trump’s signature legislative achievement so far is reducing taxes, yet in tweeting that, “I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers…great for U.S., not good for China,” he is bragging about unwittingly doing the equivalent of raising taxes on Americans – and holding the economy’s full potential hostage to his economically indefensible fetish for protectionism.