One thing can always be certain, the numbers don’t lie and never take a politician for his word.
The U.S. economy sputtered in the first quarter, expanding at the slowest pace in two years as business slashed investment by the steepest amount since the Great Recession.
Gross domestic product, the sum of a nation’s economy, slowed to a 0.5% annual growth rate in the first three months of 2016, the government said Thursday. The U.S. had grown 1.4%, 2% and 3.9% in the prior three quarters.
The dismal performance in the first quarter, however, is unlikely to carry over in the spring, most economists contend. They view the labor market as a better indicator of where the economy is headed than the more backward-looking GDP report and they point to strong job creation early in the year as evidence that growth is stable.
The case for a spring rebound will get the first big test next week when the government issues the employment report for April. Economists predict an increase of around 200,000 new jobs, matching recent gains. Only a big shortfall in new jobs is likely to set off alarms about the second quarter.
Economists polled by MarketWatch predict the economy will speed up to a 2.6% annual clip in the spring, typically the fastest growing quarter of the year. The same pattern occurred in both 2015 and 2014.
Whatever the case, the first quarter sure wasn’t pretty.
Export-heavy manufacturers facing a tougher global sales environment and U.S. energy producers coping with cheap oil led a corporate retreat in the January-to-March period. Companies cut spending on structures such as mining rigs by nearly 11% and investment in new equipment fell by 8.6%, the biggest drop since the waning stages of the 2007-2009 downturn.
After stocking up too much last summer, companies have slowed production to get inventories back in line. The value of inventories rose by just $60.9 billion in the first quarter, the smallest amount in two years, according to the government’s preliminary estimate of GDP. Two more updates will issued over the next two months.
Many economists doubt business investment will show much strength in 2016. A tepid global economic scene and a tumultuous U.S. presidential election marked by heavy anti-corporate rhetoric appears to have made business executives more cautious.