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- US growth is backsliding
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EconEcon fragile nowThe US economy is stallingMorath and Leubsdorf 4-30-14 [Eric Morath is an Economy Reporter for the Wall Street Journal, Ben Leubsdorf is a reporter for the WSJ, “U.S. Economy Starts Year With a Whimper,” http://online.wsj.com/news/articles/SB10001424052702304178104579533412969885426] U.S. growth nearly stalled in the first three months of the year, fresh evidence that the economic expansion that began almost five years ago remains the weakest in modern history. Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 0.1% in the first quarter, the Commerce Department said Wednesday. It marked the second-worst quarterly performance since the recession ended in mid-2009. The weak GDP reading came as Federal Reserve officials voted to continue withdrawing their support for the economy based on the expectation—shared by many private economists—that growth would rebound, as it already started doing as the weather improved. "Economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the central bank said in its policy statement Wednesday. Harsh weather likely slowed first-quarter business investment and discretionary consumer spending. It could have even blocked exports—which notched their sharpest decline since the recovery began—from reaching ports. Pent-up demand caused by a winter lull could lead to a stronger gains this spring and summer, and reassure the Fed that the economy can return to the stronger growth trajectory established in the second half of last year, when it expanded at a 3.4% pace. Against the optimistic backdrop, U.S. stocks climbed. The Dow Jones industrials added 45.47 points, or 0.3%, to close at a record 16580.84. Still, the first-quarter reading fell far below even the lackluster average annual gain of near 2% since the recession ended. While some easing was broadly expected, the severity of the first-quarter slowdown surprised many economists, who forecast a growth at a 1.1% rate in a Wall Street Journal survey. US growth is backslidingMui 4-30-14 [Ylan Mui, former Vice President of the Asian American Journalists Association, Washington Post reporter and CNBC contributor covering the Federal Reserve and the economy, “U.S. economy stalls dramatically in first quarter,” http://www.washingtonpost.com/blogs/wonkblog/wp/2014/04/30/u-s-economy-stalls-dramatically-in-first-quarter/] The U.S. economy stalled during the first three months of the year, according to government data released Wednesday, failing to meet even modest expectations for growth, which could renew concerns over the sustainability of the recovery.¶ The nation's gross domestic product expanded at a meager 0.1 percent annual rate in the first quarter -- well below the forecasts for 1.2 percent growth. The slowdown reflected weaker exports, a decline in business investment and cuts in state and local government spending, among other things. The recovery was propped up by strong consumer spending, driven in part by health-care spending after the implementation of the Affordable Care Act. The Commerce Department, which releases the data, emphasized that the numbers are preliminary. The government will revise the data twice more as additional information is collected. Economists had already trimmed their expectations for growth during the quarter in the face of this year’s brutally cold winter. Many believe the slowdown is only temporary and that the recovery will enjoy a bounceback through the spring.¶ "This is not a weak economy," said Paul Ashworth, chief U.S. economist at Capital Economics. "This is an economy that had two bad months because of the weather and got back to normal in March."¶ The major U.S. stock indexes opened in the red Wednesday. By late morning, the tech-heavy Nasdaq was down slightly, while the broader Standard & Poor's 500 was slightly above flat. The blue-chip Down Jones Industrial Average was up 0.12 percent.¶ Ashworth predicts that growth in the second quarter will pick up to an annual rate of 3.5 percent before settling down to 3 percent for the year. Private data released Wednesday morning by human resources firm ADP showed the country added 220,000 jobs in April --better than analysts had anticipated. The government's official tally of job creation is slated for release Friday. ¶ "The job market is gaining strength," said Mark Zandi, chief economist at Moody's Analytics, which calculates the ADP report. "After a tough winter, employers are expanding payrolls across nearly all industries and company sizes."¶ But there are concerns that the dismal report could signal more fundamental weakness in the economy. In particular, the real estate market has softened as rising prices and higher mortgage rates have made homes less affordable. New home sales were below expectations in March, while pending home sales plunged that month.¶ But data released Tuesday suggested the increase in home prices may be moderating. According to the S&P/Case-Shiller index, prices were up 13 percent for the 12 months ending in February in 20 major cities, a slower pace than in January. That could be good news for buyers. US economy is fragileTask 4-24-14 [Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo Finance, “U.S. economy “not out of the woods,” says former Fed vice chair,” https://finance.yahoo.com/blogs/daily-ticker/u-s--economy-%E2%80%9Cnot-out-of-the-woods-%E2%80%9D-says-former-fed-vice-chair-132141538.html] When U.S. first-quarter GDP numbers are reported next week, economists aren't expecting much, with estimates ranging from 1% to 1.5%. Update: A sharp drop in March new homes sales Wednesday morning prompted greater concern about first-quarter growth; in reaction, Goldman Sachs downgraded its Q1 GDP forecast to 1.4% from 1.9%.¶ But the consensus is for a big rebound in the rest of the year, with estimates of 3% for the second quarter and 2.7% for the full year, according to a Bloomberg survey. That's consistent with the "central tendency" of Federal Reserve board members, who are expecting a 2.8% to 3% growth rate for all of 2014.¶ But one former Fed official isn't so sure.¶ "I certainly think there's going to be a rebound from the first quarter [but] to make a 3% year...we've got to do a lot better than 3% in the remaining three quarters and I"m just not quite that optimistic," says Princeton professor and former Fed Vice Chair Alan Blinder. "I just don't see where the growth is going to come from." American consumers are "doing fine" but unlikely to provide a big boost to growth, Blinder says. Meanwhile, fiscal policy may be less of a drag in 2014 vs. 2013 -- but it will still be a drag, he notes.¶ And if the growth isn't a strong as expected, expectations for the Fed to accelerate its tapering program or (gasp) actually tighten monetary policy are likely to prove premature, yet again.¶ "The hawks on the Fed...would certainly like to see that outcome but I don't think the hawks are in control and that's a good thing," Blinder says. "We're still not out of the woods."¶ Based on that, Blinder says Fed Chair Janet Yellen is doing the right things by continuing Ben Bernanke's policies and reiterating the flexibility of monetary policy. "The path of the economy is uncertain and effective monetary policy must respond to unexpected twists and turns the economy may take," Yellen said in a speech last week at the Economic Club of New York. 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