The U.S. economy has usually started slow since a recovery began almost eight years ago, and 2017 looks like no exception.
Using the government’s official scorecard, known as gross domestic product, the U.S. is on track to grow less than 2% in the first quarter, perhaps considerably less. The latest evidence of a slow start to 2017 was a second straight decline in retail sales in March.
— Atlanta Fed (@AtlantaFed) April 14, 2017
Ah, but that’s looking the rearview mirror. The road ahead, if not wide open, certainly looks free of the usual nuisances early in the year such as snow and cold.
The first signs of a second-quarter rebound might come this week in reports on manufacturing in the New York and Philadelphia regions. Both indexes have turned sharply higher in 2017 on rising sales and fresh hope that a pro-business Trump White House will give a boost to the economy.
Although the indexes have come off recent highs, they still paint a picture of a manufacturing industry that’s the strongest it’s been in several years.
The Federal Reserve’s so-called Beige Book, meanwhile, is likely to offer a largely positive assessment on the economy from the central bank. The Fed is poised to raise interest rates again soon, reflecting its optimism that no real slowdown is in sight.
What’s expected to underpin second-quarter growth is higher household spending. Consumers cut back early in the year, partly to recover from holiday spending but also because tax refunds were sent out unusually late. Millions of Americans will have more money to spend this month and next.
Gas prices have also stabilized, adding a little more loose change to the pockets of consumers.
More reassuringly, the U.S. economy is simply on much more solid ground than anytime since the Great Recession ended in the middle of 2009.
Hiring is steady, job openings are near a record high, wages are increasing and the unemployment rate is a mere 4.5%. Big amd small businesses alike are also showing more optimism.
The improved health of the U.S. economy helps explain why sales of new and previously owned homes continue to hit fresh post-recession highs.
Construction firms are also pushing to build more new homes and large apartment complexes, an outcome that may be causing rents to stabilize after sharp increases over the past few years.
“The steady pace of job creation and income growth implies demand from potential home buyers remains healthy,” said economist Lewis Alexander of Nomura.
In March, new construction is forecast to show a small weather-related decline, but the trend is clearly up. Ditto for sales of existing homes, which are expected to rise slightly.
So forget about first-quarter GDP. Even if it’s a weak number, slow first-quarter growth has persistently been followed by a spring revival. This year is unlikely to be any different, and who knows: the rebound could be even bigger if the Trump White House recovers from its recent health-care debacle and gets more pro-growth policies approved.