On Tuesday, the New York Times published an article headlined, “No one cares about economic data anymore. That’s good news.” According to the piece, “The economy has gotten boring. … (It) has spent the last three years displaying astonishing consistency.”
One day later, the Commerce Department reported its initial estimate that economic growth nearly screeched to a halt in the first quarter. Gross domestic product rose at an annual rate of 0.1 percent, down from 3.4 percent in the latter half of 2013 and not even close to economists’ consensus forecast of 1.2 percent.
The U.S. economy, it seems, is not so boring after all.
To be fair, the Times article predicted a weak first-quarter number while making the important point that such fluctuations smooth out over time. The longer-term trends look decidedly positive.
Other data released this week support this view. The Paychex | IHS Small Business Jobs Index, for example, pointed to improving employment conditions nationwide.
Automatic Data Processing Inc., meanwhile, issued a report predicting that 220,000 jobs were added in April. The company also revised its March number upward.
The GDP report itself contained evidence that the economy is stronger than the sharp drop in first-quarter growth would suggest. The unusually severe winter took its toll. What’s more, the change in private inventories subtracted nearly 0.6 percentage point from the GDP number. Both are short-term factors.
And total consumer spending rose 3 percent, which economists view positively.
Looking ahead, the biggest question might be: What will businesses do? Non-residential fixed investment—business spending on buildings, equipment, software and the like—slid 2.1 percent in the first three months of the year. Will it return to the growth pattern that began in early 2010?
And will employers pick up the pace of hiring? The economy continues to add jobs, but the labor force participation rate remains unusually low.
Stepped-up investing and hiring require a degree of confidence many businesses still lack. Caution is understandable, but it’s also worth remembering that belief in a weak economy can be self-fulfilling.
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