U.S. growth outlook snowed under yet again

April 29, 2015

SFor many years in a row, since a form of feeble recovery began from the worst financial crisis in more than 80 years, a similar pattern of déjà vu has set in for the U.S. economy.

The year kicks off with a bout of optimism about growth prospects, the stock market rallies, only to be followed by rapidly-deteriorating forecasts for first quarter GDP, which turn out to be nowhere near pessimistic enough.

In one recent year Goldman Sachs went from forecasting nearly 4 percent annualized GDP growth in the first quarter to barely anything at all in the span of a few months.

Around the end of April, government statisticians tell us to our horror that for one reason or another, a bad winter and a combination of other “one-off factors” have conspired to bring the world’s largest economy to a standstill.

And this on data that are seasonally adjusted, which, after nearly half a decade more or less uninterrupted showing this kind of pattern, finally have started to trigger genuine concern about whether the seasonal adjustments aren’t working.

Recent severity possibly stemming from climate change aside, the U.S. has been experiencing harsh winters with lots of snow and ice long before a single economic statistic was ever collected by a government statistician.

This year has been no exception to the well-worn rule: after coming out of the gate at the start of the year optimistic about the windfall a more than halving in the price of oil would bring to American consumers, the same thing happened again.

Those forecasts got trimmed, tracked down and then cut. Some of it is down to winter. Some of it is down to widespread interruption to West Coast trade which was widely understood and expected to turn up in the numbers.

Yet still on GDP publication day, out of 90 economists polled, only three of them managed to pencil in the actual 0.2 percent annualized growth rate reported – essentially no growth at all. And that rate was flattered by an adjustment owing to falling prices that flattered what would otherwise have been a negative figure.

What appears different this time is that several economists — who conveniently avoid mentioning they continue to get it wrong about the start of the year — appear a bit more reluctant than they have in the past to “look through” the data and find myriad ways to explain away a terrible outcome.

Harm Bandholz from UniCredit summed up the mood nicely: “It is hard to put lipstick on that pig: This is unequivocally a very weak report.”

Many are now saying that any talk of a near-term interest rate rise from the Federal Reserve is off the table.

Cynics might say that if economists are coming around to the idea of Q1 GDP weakness lingering on through the rest of the year and not magically bouncing back then it’s time to go long the recovery because they always get it wrong.

Another way to look at it is this: more than half a decade since the worst of the financial crisis there are forces still not completely understood preventing the economy from getting back on a strong enough path to warrant interest rate hikes.

Until they are understood and the path to higher inflation can be foreseen with any degree of confidence, rates may remain at a record low for longer than anybody currently thinks.

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