Growth may be slowing down, but he recent 2.9% decline in first-quarter 2014 GDP over the previous quarter (annualized) is
not an indication of déjà vu all over again.
The markets ignored it, and at ITR
Economics, we don’t put much stock in it
either. True, the weakness was worse than
expected. The stock market had a slow
start, and the harsh winter caused housing
starts and retail sales to slow. The extenuating circumstances have dissipated.
For the record, ITR Economics does not
consider GDP a good leading indicator of
business cycles. It may be helpful in retrospect, but finding out where the U.S. economy is six months into the year is hardly
a good predictive tool. Remember, the first
quarter of 2013 started at 1.3% annual
growth and accelerated from there, ending
the year at a 2.6% pace. A slow start does
not mean a recession is coming.
Our preferred measure of the U.S. economy is Industrial Production. On an annual
basis, it shows that the U.S. economy has
grown 3.3% over the past 12 months.
Indications are for further growth in production, albeit at a slightly slower rate in
the second half of 2014 and into 2015. We
expect an overall positive business cycle
over the next 18 months—a reduction in
the growth rate, not a recession.
Production—some bright spots
The current rise in the Industrial Production data trend represents broad-based
growth in the U.S. economy in terms of
both industrial sectors and geographic
regions. Manufacturing Production and
Mining Production both show accelerating growth. Utilities Production is flat, but
still 2.5% above one year ago. The Federal
Reserve’s Beige Book shows growth in all
12 Fed Districts. Seventeen out of 18 indus-
tries surveyed for the May ISM Purchasing
Managers Index reported expansion.
The labor market is also gaining momentum. In May, the economy added 217,000
jobs to NonFarm Payrolls, with the six-month average moving higher to 192,000
new jobs per month. Nonfarm Payrolls
have now surpassed their prerecession
peak, meaning the economy has gained
back all the jobs lost during the recession.
The unemployment rate fell to a five-and-
Increasing consumer costs
a-half year low of 6.1% in May. A stronger
job market is good news for the consumer,
as wages have started to accelerate fol-
lowing several years of stagnation. But
higher wages may impact your margins if
you are unable to pass along costs to your
Despite the plethora of good news, the
economy does face troubles. The weakness
that we foresee for late 2014 and early 2015
will be due in large part to issues facing the
consumer. While wages are indeed starting
to accelerate, so too are many day-to-day
costs. Food prices, especially for meat and
dairy products, are growing at a rapid pace
as supply issues plague the industry.
The accelerated rise in housing starts
ended a year ago, and the rate of ascent
has markedly slowed. Weather may not
Economic Forecast: Slowdown,
Not Breakdown By Danielle Marceau
On an annual basis, Industrial Production data shows that the U. S. economy has grown 3.3% over
the past 12 months. Indications for further growth in production at a slightly slower rate can be
expected into 2015.
U.S. Industrial Production Rate-of-Change