World Economy

Will US Economy Roar Back?

Will US Economy Roar Back?
Will US Economy Roar Back?

The US economy suffered a big letdown in the first three months of 2015. Now it’s time to find out if warmer weather resuscitates growth — just like it did last year.

A spate of reports this week will yield the first clues on whether a second-quarter rebound is underway, including number of autos sold in April and a trio of surveys that tell us what consumers and business leaders think about the economy, MarketWatch opined.

The government will also provide the first official look at how the economy performed in the first quarter, but Wall Street is likely to look past what almost certainly will be a poor but backward-looking number. The overriding consensus is that a slew of onetime factors including harsh weather was a drag on gross domestic product early in the year.

The Federal Reserve, gearing up for another big meeting in Washington on Wednesday, is also expected to take a more forward-looking approach.

“They are assuming that history repeats itself,” said Ryan Sweet, director of real-time economics at Moody’s Analytics. “The first quarter is going to be a dud and then growth bounces back in the second and third quarters.”

  One-Legged Stool?

History never repeats itself exactly, however, and the US economy probably won’t follow exactly same path as it did in 2014, when GDP roared back with consecutive gains of 4.6% and 5% after a disastrous first quarter.

The spike in the dollar and the plunge in oil prices since last summer will see to that.

The strong dollar has curbed sales of US exports because it makes Americans goods and services more expensive to sell in foreign countries. Meanwhile, cheaper oil has cut like a scythe through a resurgent domestic energy industry and forced companies to slash hiring and investment.

The result has been a sharp drop in new orders for big-ticket items such as heavy machinery, electrical equipment and other goods that compose the bulk of business investment. That’s partly knocked out one of the three main legs supporting the US economy.

Soft business investment is not a new phenomenon. Companies have been extremely cautious about spending and investment since the US recovery began almost six years ago, helping to explain why growth has been so slow. And now shrinking corporate profits may keep it that way.

Fortunately the biggest driver of economic growth, consumer spending, has not been nearly as weak. And it could get even stronger because of a surge in hiring over the past few years, the first hint of rising wages and the much lower cost of filling up at the gas pump.

“There is more money in the hands of consumers,” Kaufler said. On Thursday, the government is expected to report that spending rose a solid 0.5% in March.