Is the U.S. economy falling? Recently reports from various economic organizations, including the International Monetary Fund, or IMF, have begun to predict that the American economy will not grow as much as had been predicted by many organizations at the beginning of 2014. So, what does that mean?
Is America Heading for Another Recession?
Thanks to the extreme polarization in American politics, these reports have been met with either an uninterested dismissal, or with warnings that the end is nigh. As always, neither is completely accurate.
So, what is really going on?
The northeast part of the United States holds not only a lot of the population, but it also contains some of the biggest financial and manufacturing centers. So, when something affects the Northeast, it affects all of America, at least statistically speaking.
The long, harsh winter weather, now being referred to as a deep freeze, appears to have substantially affected everything from customer spending, to shipping goods, to manufacturing. In other words, that long spell of adverse weather put a break on economic activity in that region, enough to affect the overall numbers for the U.S. economy. Economists now suggest that the American economy contracted at an annual rate of 1.5% to 2.4% in the first quarter. This is higher than the earlier reports that the economy contracted at an annual rate of 1%.
These numbers are bigger than when we published the 2014 mid-year economic review, but the general conclusions of that review are still the same.
If the economy is contracting, does that mean another recession is coming?
First, it is important to notice in these statistics the words, “annual rate.” This means that if, hypothetically speaking, the entire year was to proceed in the same way as the first quarter then the rate of contraction at the end of the year would be 1.5% to 2.4% for the year. For a useful, though inaccurate, approximation, one could say that the actual contraction was one-fourth of those numbers.
Second, it is important to note that the rest of the year is NOT proceeding like the first quarter. Instead, most economists continue to expect that the U.S economy grew in the second quarter, and will do so in the third and fourth quarters as well. In other words, the economy will not shrink this year. However, since there was an unexpected negative number in the first quarter, the economic predictions for the year will be off. How far they are off will depend upon whether the consensus that the contraction of the first quarter was a one time, weather related blip, or if there was actually an underlying contraction.
Either way, expect liberals to point out that the economy is still growing, and expect conservatives to say that administration policies are responsible for a slowing economy.
The truth, for the rest of us is that the recovery from the Great Recession from the end of the last decade is still moving forward, but like before, really, really slowly.