By Ben Dickey Over the last three years, the first quarter GDP numbers have been terrible. This year was no exception. Originally announced at a 0.2% gain, it was revised downward to a 0.7% loss. The economy is growing at a rate which cannot handle small setbacks such as cold weather, a dock strike on the West Coast or lower than expected job gains.
The first quarter stumble was one of three negative quarters since the recovery began in 2009. The last time that happened was in the 1950s. One of the reasons we have had much slower growth in this expansion is the very low rate of productivity gains. Output gains from U.S. workers fell in the first quarter underscoring the GDP loss. Productivity fell at a 1.6% rate in the first quarter. This is concerning because productivity gains have been very weak over the entire expansion.
The first quarter drop in productivity followed a fourth quarter loss, marking two consecutive quarters of reduction. That is the first time this has happened since 2006. The anemic productivity growth during the expansion can be partially attributable to a lack of business investment. With the collapse in oil prices, oil and gas companies have greatly reduced capital expenditures. The oil and gas industry, along with the chemical industry have supplied the majority of the capital employed over the last six or seven years. Now the chemical industry is the last man standing.
As the dollar pulls back, commodities in general are showing signs of life. Copper, oil and agricultural commodities are showing signs of price increases. Oil prices now have moved back up past the $50 hurdle and are trading in a narrow range between $58 and $62.