U.S. Economy Stalls in the First Quarter

[Purveyor]

Source: Bloomberg

8:30 AM EDT
April 29, 2015

The world’s largest economy sputtered to a near-halt in the first quarter, choked by a slump in U.S. business investment and exports that dimmed hopes for a meaningful short-term rebound.

Gross domestic product rose at a 0.2 percent annualized rate after advancing 2.2 percent the prior quarter, Commerce Department data showed Wednesday in Washington.

The figures come as Federal Reserve policy makers meet, and the weaker-than-forecast reading signals officials will be in no rush to raise interest rates. While the economy is likely to bounce back from the temporary restraints of harsh winter weather and delays at West Coast ports, the harm caused by the plunge in fuel prices and stronger dollar will probably prove longer-lasting.

“There’s not a whole lot of momentum heading into the second quarter,” said Mike Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “We expect the economy to be better, but some of the details in this report are cautionary.”

Read more: http://www.bloomberg.com/news/articles/2015-04-29/economy-in-u-s-stalls-on-slump-in-business-spending-exports

[Jacoby365]

1. I have felt it in my business.

I've had to slash prices by 50% just to keep things moving. I keep reading that lower fuel prices are contributing to a slower economy, such as in this article: "...the harm caused by the plunge in fuel prices...". This makes no sense to me, as lower fuel prices puts more money in the hands of consumers. Why do I keep hearing that? Maybe someone smarter than me can explain it.

[whatthehey]

2. Not sure about the smarter but

oil and gas are major components of US business. We are a large exporter of refined gasoline and, obviously, a large consumer. As the price decreases, every barrel generates fewer $$ of economic activity. Yes at the retail end that means more money to spend on other things, but the marginal propensity to consume means you don't replace the full economic impact that would have come from a necessity like fuel. People individually are better off, but economic activity reduces a bit. To put it another way, GDP doesn't care what you spend money on, so unless you, consumers and businesses, spend every nickel that you would have on gas on something else, saving nothing, lower fuel will decrease GDP overall. It's surely more complex than that because part of both fuel and substituted spending will be imports not GDP, but that's the broad aggregate look.

[forest444]

5. I'm sorry to hear that - and that's a good point:

Last edited Thu Apr 30, 2015, 01:30 PM - Edit history (1)

it makes no sense that GDP growth has slowed to almost zero, while lower prices have pushed inflation to negative territory. It's therefore obvious that such a notion is being thrown out there as a canard to distract from more systemic problems that -as corporate America knows- can only be corrected with better pay increases.

It's true that the oil industry -through its products and all the investment and upkeep their exploration, extraction, refineries, and distribution require- adds a good bit to our nation's GDP, 5% perhaps. But it's also true that real GDP takes the lower prices into account, such that real GDP should not have been affected as much as it has.

And as your case illustrates, the awl bidness is just a small percentage of our overall GDP. Sharp swings in the rate of growth require movement in much broader sectors than just theirs. Take spending on business construction, down 23% on an annualized basis. Some of that is no doubt the result of lower spending on oil and gas structures - but such a steep drop indicates a much more widespread retrenchment.

The best indicator of generalized problems in the economy, where this report is concerned, is in consumer spending. It grew; but very weakly - and since private consumption (personal and business) is 68% of GDP, this indicates widespread problems that are so severe, even lower energy prices can't help much (and they definitely would have, in real terms).

[Yo_Mama]

6. Well, the frenetic pace of drilling activity has slowed, but a lot more is going on.

Lower fuel prices do help consumers cope with higher food prices, but on the whole, US families are rather stretched, and businesses are having problems too.

I posted a thread at the beginning of this month about the CES survey mid-year update, showing a continued decline in family finances:
http://www.democraticunderground.com/10026455589

Higher PCE in the fourth quarter was related to lower fuel costs, but families have lost ground. Also, higher medical costs are hurting many families badly.

Lower incomes and higher costs eventually create drag on the economy, and a stronger dollar prevents many businesses from ratcheting up exports (or even keeping them current). So a business slowdown.

The business-to-business credit index from NACM showed a very significant downturn in business credit for February and March. So you are not the only one suffering.

[dixiegrrrrl]

7. One example of the harm...

Fracking, they say, needs an 80.00 barrel price point to be profitable.
The fracking biz relied on millions of bucks in loans.
Price of oil collapsed, loans could not be paid, so a LOT of fracking biz went bust.
and businesses that serviced the oil drilling companies went bust.

People were pouring into Houston, for example, in the initial wave of fracking money.
Houses and apts were being built to accommodate them.

Funny thing...the banks that made the loans sold them off, like they do with mortgage loans and car loans and student loans.
So they did all right, having collected the money first by the loan sales.
Everyone else, not so good.

[sendero]

8. I'm not buying that idea..

... though lots of people are selling it. Only a few percent of the population is involved in the production of oil, yet almost all are consumers.

I think the usual suspects are trying to find an excuse for a slowdown that has nothing to do with oil. It has to do MOSTLY with the fact that the Chinese and European economies are slowing a lot, and guess what happens when you have global economy and a trade partner sneezes? You catch a cold.

In fact, while what is exactly going on with oil prices is beyond anyone's ken, a component of the decline in price is a decline in consumption/demand brought on by the slowing of the world's economies.

[Demeter]

3. Just wait until the NEXT Quarter!

We'll see a decline. It will inexplicable, just a blip, they will say....until the THIRD Quarter....when Reality will be whispered in the halls of power and policy....

[Skittles]

4. more people are retiring into poverty

or waking up to the fact they have severely underfunded retirement savings and are trying to save more?

[mahatmakanejeeves]

9. U.S. economic growth slows to 0.2 percent, grinding nearly to a halt

Adding a link.

U.S. economic growth slows to 0.2 percent, grinding nearly to a halt