March 03, 2015
With a string of strong jobs reports (the most recent coming with good hourly wage growth) the business section has been filled with reports of America once again being a booming economy, which contrasted with weak growth elsewhere in the world. With a bit more data, it’s not clear that reporters will still be writing these stories.
First, the fourth quarter growth rate was revised down to 2.2 percent, giving a 2.4 percent growth rate over the prior year. This is almost exactly the same as the average of the last two years. Not much of a case for an acceleration of growth there.
Furthermore, the data that have come in for the first quarter don’t look very promising. Construction spending fell by 1.1 percent from December to January. Retail sales fell 0.8 percent in January compared to December. Car sales were relatively weak in February. This was undoubtedly in part due to unusually severe weather, but it nonetheless virtually guarantees weak growth in consumption for the quarter. Equipment investment is up modestly, but January shipments were only slightly above the October level. In short, we are not seeing any investment boom.
With weak consumption and lackluster investment, there will be little to counter the impact of a rising trade deficit resulting largely from the increase in the value of the dollar. Look for first quarter growth under 2.0 percent and possibly a fair bit under 2.0 percent. (Insofar as the weakness is weather-related, there will be a rebound in the second and third quarters, as happened last year.)
Meanwhile, the rest of the world is looking brighter. Japan had 2.2 percent GDP growth in the fourth quarter, which puts it about a percentage point ahead of the United States on a per capita basis. The euro zone economies are now showing modest growth, but the best news may be coming from Germany. IG. Metall, the country’s largest trade union, signed a pact increasing wages by 3.4 percent. IG Metall’s contracts often provide a basis for other contracts and even wages among non-union workers.
This could be a sign that wages and consumption will grow more rapidly in Germany. This also could lead to somewhat higher inflation in Germany, which will be a huge help to the peripheral countries in the euro that are trying to regain competitiveness. In short, this is really good news for German workers and the euro zone as a whole.
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