For the third year in a row, the American economy suffered a poor first quarter. GDP expanded by an unexpectedly low 0.6% on an annualised basis between January and March 2016, down from 1.4% in the final three months of 2015. Consumption growth slowed, even though disposable income rose by almost 3%, and business investment disappointed.
In 2014 and 2015 poor weather was to blame for a weak start to the year. This time round the weather was fine, but the data are still “likely to represent another false dusk”, as Roger Bootle of Capital Economics puts it in The Daily Telegraph. A key problem was an 86% annualised drop in mining investment, a factor that will fade as commodity prices rebound.
Meanwhile, up-to-date surveys are more upbeat – manufacturing activity reached its second-highest level in eight months in May, for instance – and financial conditions point to a rebound. Bank lending has been growing at around 8%. The labour market is strong, which bodes well for continued consumption, the lion’s share of GDP.
Other statistics also look encouraging. The budget deficit is down to just 2.4% of GDP and there is no fiscal tightening planned, unlike in Britain, says Bootle. The weakening of the dollar should reduce the extent to which net trade lessens GDP. All told, it looks as though the US is heading for growth of about 2% again this year.
Compared to previous recoveries, this is “hardly exciting” – but it’s hardly disastrous either. As in 2014 and 2015, investors should ignore the first quarter.