Q1 GDP estimate brings more grim news for savers
If you never get a second chance to make a first impression, then 2014's economy is off to a lousy start.
The Bureau of Economic Analysis (BEA) announced last week that after adjustment for inflation, the U.S. economy grew at an annual rate of just 0.1 percent in the first quarter of 2014. In medical terms, this means the patient is still breathing, but the vital signs are faint.
The bad news
The real GDP growth rate of 0.1 percent reflects a continued deceleration of growth over the past six months. After the economy registered an encouraging 4.1 percent growth rate in the third quarter of last year, it slowed to 2.6 percent in the fourth quarter, and now 0.1 percent.
This latest slowdown is consistent with the start-and-stop recovery since the Great Recession officially ended in mid-2009. Since then, the economy has not been able to string together more than three calendar quarters of growth rates of 2 percent or more before relapsing. Two percent is hardly a robust growth rate, but even that has proven too high a hurdle for this economy to clear consistently.
Don't just blame the weatherIt is tempting to blame the weather, but this explanation does not quite cut it. It is true that the winter of 2014 was particularly harsh, and probably did have a dampening effect on economic activity. However, one item in the GDP report stands out ominously, both because it does not have anything to do with weather in the U.S. and because of its significance for future growth prospects. According to the BEA, real exports of goods and services declined by 7.6 percent in the first quarter -- something that cannot be attributed to flooding in Colorado or snow in Boston. The optimistic scenario for a sustainable recovery was that large developing economies like those of China and Russia were supposed to be the next big engines of global growth. Now, China is fighting its own signs of economic slowdown, and Russia is barely speaking with the U.S. These are problems that will not suddenly improve as the weather gets better.
Impact on interest ratesAll-in-all, this signals a likely continuation of low bank rates and high unemployment. While ordinary savers are hurt by the downward pressure on today's savings account rates, Wall Street generally cheers the Federal Reserve's low-interest-rate policies, which this latest evidence of slow growth will encourage. Ultimately though, the country will prosper from growth -- not low interest rates. Perhaps the most optimistic thing that can be said about today's GDP report is that this is just the first of three official estimates the BEA will make for first-quarter GDP growth. While the first estimates tend to be understated by an average of 0.3 percent, there are also times when these estimates are overstated and subsequent estimates are lower.
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