The U.S. economy barely grew in the first quarter as exports tumbled and businesses accumulated stocks at the slowest pace in nearly a year, but activity already appears to be bouncing back.
Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said on Wednesday.
That was a sharp pullback from the fourth quarter’s 2.6 percent pace and was worse than economists’ expectations for a slowdown to a 1.2 percent rate. The slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.
Today’s GDP estimate is subject to a number of notable influences, including historically severe winter weather, which temporarily lowered growth in the first quarter. The report also shows the positive impact of the implementation of the Affordable Care Act which, together with continued slowing in health costs, helped strengthen the economy in the first quarter. …
2. The first quarter of 2014 was marked by unusually severe winter weather, including record cold temperatures and snowstorms, which explains part of the difference in GDP growth relative to previous quarters. The left chart shows the quarterly deviation in heating degree days from its average for the same quarter over the previous five years. By this measure, the first quarter of 2014 was the third most unusually cold quarter over the last sixty years, behind only the first quarter of 1978 and the fourth quarter of 1976. In addition, there were four storms in the first quarter that rated on the Northeast Snowfall Impact Scale (NESIS). The right chart shows that no quarter going back to 1956 had more than three such storms.
As the U.S. economy teetered on the brink of contraction in the first quarter, one thing stood out. Healthcare spending increased at its fastest pace in more than three decades.
That surge is attributed to the implementation of President Barack Obama’s signature healthcare law, the Affordable Care Act, also known as Obamacare. Because of Obamacare, the nation narrowly avoided its first decline in output in three years.
“GDP growth would have … been negative were it not for healthcare spending,” said Harm Bandholz, chief economist at UniCredit Research in New York.
Healthcare spending increased at a 9.9 percent annual rate, the quickest since the third quarter of 1980, and it contributed 1.1 percentage points to GDP growth.
The truth is, nobody knows how much of this slowdown represents a blip that will reverse in coming months is — and how much of it reflects fundamental weakness in the economy. The weather does a good job of explaining why businesses held back on investment during the beginning of the year, but it doesn’t explain stubborn weakness in housing or why companies aren’t exporting more. The economic recovery – now almost five years old – is replete with false starts and dashed optimism.
The spring and summer should be revealing – and are enormously important for the debate in Washington and the mid-term election campaign. Economic growth is an important factor in many models predicting the outcome of mid-term elections. If it continues to perform poorly, endangered Democrats could have even more reason to worry. And there could be compounding factors. It’s been a bit of a mystery about why Obama’s approval numbers – another factor in the mid-term races – have fared poorly after his administration was able to turn the Affordable Care Act enrollment period into something of a success. Perhaps slow growth – hey, bad weather makes people depressed, too – had something to do with it.
A housing recovery that was expected to accelerate this year is instead sputtering. And no, you can’t just blame the weather.
Sharp increases in home prices in much of the USA, along with higher mortgage rates, have discouraged many house-hunters. Home inventories are at historically low levels. First-time home buyers, who traditionally drive home sales, remain saddled with student debt and face still-stringent lending standards.
After bouncing back smartly in 2012 and most of 2013 following the 2006-09 real estate crash, the housing market began slowing last fall. Although an unusually cold and snowy winter hindered activity early this year, home sales and starts were disappointing again in March, even in the West and South.
With the Republican-led filibuster of a Senate proposal to raise the federal minimum wage to $10.10 on Wednesday, Democrats moved swiftly to frame the vote as an example of the gulf that exists between the two parties on matters of economic fairness and upward mobility.
The question is not just one of money, they said, but of morality. And in doing so the Democrats returned to the themes that were successful for their party and President Obama in 2012 when they convinced swing voters that Democrats were mindful of the best interests of all Americans — not just those who are powerful and wealthy.
Speaking from the White House shortly after the measure was defeated 54 to 42, with 60 votes needed to advance, Mr. Obama admonished Republicans and called on voters to punish them at the polls in November. “If there’s any good news here, it’s that Republicans in Congress don’t get the last word on this issue, or any issue,” Mr. Obama said. “You do, the American people, the voters.”
“If your member of Congress doesn’t support raising the minimum wage,” he added, “you have to let them know they’re out of step, and that if they keep putting politics ahead of working Americans, you’ll put them out of office.”
Every other sentence out of the mouths of Barack Obama and other progressive Democrats seems to invoke the “middle class,” and when they’re not promising to help the middle class, they’re obsessing about how to humble the rich. In the past two weeks, the Left’s preoccupation with confiscating thy neighbor’s goods has been highlighted by two things: The reception of Thomas Piketty’s new book, Capital in the Twenty-first Century, and the response to rumors that Senator Elizabeth (“Occupy Wall Street”) Warren might run for president. Both have received the full secular saint treatment, reflecting the progressives’ almost mob-like eagerness to lay hands on more of the property of the rich. Not for the poor, mind you, but for the “middle class” (translation: themselves).
The great advantage of being a liberal/progressive in America is that you are always judged on your intentions (or stated intentions) and not on results. While the pundits are swooning for Piketty and Warren, may we have even a moment’s pause to consider how well Obama’s brand of progressivism has done for the poor and middle class?
To the extent we have an economic inequality problem, it’s not because a small percenatge of our population—comprised of professional entertainers and athletes, corporate CEOs, internet pioneers, and others—are wealthier than the average American. Young graduates bearing large student loans while facing a weak job market, families facing unemployment or low wages, and single parents struggling to raise children do not find their situations any more difficult because some in our nation are wealthy.
Yet, liberals seem to think otherwise, and here we find a stark illustration of the converse mindsets of liberals and conservatives. Liberals seem to want to reduce economic inequality by bringing the people at the top down, while conservatives want to reduce inequality by bringing the people at the bottom up. The left wants to focus on class warfare while the right wants to focus on economic growth, the proverbial rising tide that raises all boats.
If we want to reduce economic inequality, the only logical solution is to raise the living standards of the middle class and those at the lower end of the economic spectrum.