Jack Rasmus

Japan may be in its fourth recession since 2009. The Eurozone may be slipping in and out of recession every couple of years. But the US economy is in full recovery. So we’re told. It is growing nicely, while the rest of the world lags behind. Or so the ideological spin goes.

But even business research departments are now downgrading their 1st quarter GDP reports almost weekly, most now estimate a 1st quarter US GDP growth of 1% to 1.3%. That’s down from 2.2% in the 4th quarter, and from the 5% of last year’s 3rd quarter US GDP numbers that were heralded at the time that the US recovery was now in permanent mode. But we’ve heard that before, several times, since 2010.

A closer look, at last year’s much hyped 5% GDP growth in the 3rd quarter 2014, and at the data for most recent months in early 2015, show there is nothing that has really changed long term for the US economy. It’s back to its ‘stop-go’ scenario. When official figures for US GDP for the first quarter are published in late April, and revised in May more accurately, there may be a big surprise. The recent growth of jobs of only 126,000 in March, a lagging indicator, may be a harbinger of more disappointing news to come.

Long term, the US economy continues to grow at an annual rate about half of what is normal in past decades. Over the past six years, occasional quarter GDP growth rates of 4-5% typically are followed by a sharp collapse of GDP growth, or even negative GDP, within months. This in fact has happened four times since 2009 resulting in a ‘stop-go’ economic recovery: in the first quarter of 2011, fourth quarter of 2012, first quarter of 2014 last year—and it appears it may happen again a fifth time in the recent first quarter, January-March 2015.

The US economy’s ‘yo-yo’, or ‘seesaw’, economic trajectory is nothing special or exceptional. Japan and Europe have been experiencing the same. Their ‘bouncing’ along the bottom is just at a level closer to the bottom (or even below it) than has been the US economy’s the past five years. Whereas the US economy’s growth spikes up to 4% or so on occasion, only to collapse back again to zero or less growth, the US economic growth longer term has been averaging about 1.7% annually the past five years. That’s about half its normal growth rate compared to US recoveries from recessions in the past. Japan and Europe might spike to only 2% on occasion, but then slip to negative growth—i.e. into a bona fide recession.

So it’s ‘stop-go’ recovery for all three, occurring just at different levels of ‘go’ and of ‘stop’. Nothing exceptional or different economically over the longer term, in other words.

Comparing the US temporary 5% economic growth of last July-September 2014, to what will almost certainly prove to be a 1% or less growth rate for the January-March 2015 period when the final numbers come in later this May, shows that temporary, ‘one-off’ factors occurred last summer 2014 to produce the brief 4%-5% GDP US growth. Those temporary factors have since reversed or disappeared in the first three months of 2015. Take away those one-off factors of nine months ago, and one gets the less than 1% growth likely to register for the most recent three months, January-March 2015.

Here’s a brief explanation:

Shale Gas/Oil Industrial Production Boom

In early 2014 the shale gas/oil boom was in full swing in the US. That boosted what is called Industrial Production and much of last year’s jobs growth. But when the global oil price glut began last June, precipitated by Saudi Arabia and its emirate friends attempt to drive the shale gas/oil producers in the US into bankruptcy, the shale boom in the US came to an abrupt halt. Industrial production slowed rapidly after the summer and has continued ever since, turning negative since December. Jobs began to disappear. It is projected that jobs in Texas, the largest shale producer, will decline by 150,000 in early 2015.

Manufacturing & Exports

In early 2015 US manufacturing and exports continued to grow, as the US dollar remained low giving US exports an advantage. But the collapse of world oil prices and the simultaneous talk by the US central bank it would raise interest rates resulted in a 20% rise in the dollar. Japan and Eurozone QEs pushed it still higher. The result was the beginning of a collapse in late 2014 of the contribution of US manufacturing and exports to US economic growth. That continues into 2015. Manufacturing orders have declined every month since December 2014.

Obamacare Consumer Health Spending

Another one-time boost to US GDP in mid-2014 was the signing up of 9 million of US consumers into the government’s new privatized health insurance coverage program, who couldn’t get health insurance. They started paying monthly premiums, and using health care services. That provided a boost to consumer spending that didn’t previously exist. But by 2015 the sign ups have leveled off. No more additional boost consequently in 2015.

Auto Buying Boom Goes Bust

Another consumer spending element that was peaking last summer was the boom in auto sales in the US. That too has now come to an end, as the market in the US has become saturated in terms of auto sales after four years. Auto sales since December, usually a strong month for auto sales, declined and have continued declining through February. The auto boomlet in the US is over.

General US Consumer Spending

Consumer spending in general has turned negative, starting in December. The US indicator, the Personal Consumption Expenditures Index (PCE) declined in December-January, was flat in February and suggests no change in March. Consumer spending was supposed to surge, according to mainstream economists, as consumers enjoyed lower gasoline prices. Instead, consumers saved the lower gasoline prices or used it to help pay off their massive debt loads (which this writer predicted would be the case last year). US retail sales, which constitute the largest part of consumer spending, grew at a 4%-5% rate over last summer. But once again has turned negative since December 2014, falling by -1.0%, -0.9%, -0.6%, December through February, and likely falling again in March 2015. So both retail sales and consumer spending in general have turned negative.

Business Spending

In the third quarter, July-September, of the year for the past five years, businesses in the US have boosted their spending, building up their inventories, in anticipation of a rise in year end holiday consumer spending. But the holiday spending then typically falls short of expectations, and businesses ‘work off’ the inventories in the first quarter, January-March, of the following year. This has happened yet again in 2015. Another element of business spending, on new equipment, is barely inching along, growing only 0.6% in the fourth quarter of 2014 and likely no more or even less in the first quarter.

Government Defense Spending

It is a well-known and documented fact that in the US, every other year in which there is a national election, the federal government holds off spending early in the year so it can release it in the summer before the election. That occurred in 2012 before the national presidential elections and in 2014 before the midterm Congressional elections. That government spending gives an added boost in the July-September quarter, as politicians try to create the impression the economy is doing better than it is longer term. That too happened last summer. But that spending will contract early in 2015 relative to last summer.

US Jobs Creation

Job creation always lags the real economy. And after growing jobs at a rate of 200,000 a month last year (mostly low paid, part time/temp, service jobs), jobs growth in March rose by only 126,000. Preceding months of January-February were also reduced. The employment data thus are now confirming the general economic slowdown in the first quarter 2015 as well. Apologists for the politicians will no doubt use the excuse of ‘bad weather’ for the feeble March jobs numbers. But there’s bad weather every winter. What March jobs are really showing is the lagged response of job creation to the real forces slowing the US economy that started to occur late last year–and the dissipation of those temporary factors that boosted the economy last summer.

But what’s really happening is job creation is, and will continue, to slow. The ‘canary in the jobs mine’ is jobs in the goods producing sector, which have been slowing rapidly for several months and now have finally turned negative in March. That reflects the collapse in manufacturing, mining, and good production that began late last year and now continues.

In short, it appears once again, for the fifth time in as many years, that the US economy continues on its stop-go trajectory of the past five years. The economy weakens significantly every 4th quarter/1st quarter and the weak growth is ‘made up’ the following summer. Smoothing and averaging it all out over the year produces the longer term sub-historical average growth rate of around 1.8%, after convenient redefinitions of US GDP in 2013 are backed out to give the real GDP. That’s about half of normal historic US growth rates in recoveries from recession periods. And it now appears that ‘half normal’ has become the ‘new normal’.