Last week the US Federal Reserve surprised with a post meeting statement that weakened its previously confident stance about the strength of the US economic recovery.
On Friday that ‘reserve’ from the Fed about the current health of the economy was supported by another cut in the estimate for first quarter GDP.
As a result the annual rate of growth in the US economy is now around half what it was in the last quarter of 2009, according to the third and final estimate of March quarter growth.
According to the US Commerce Department the American economy grew at an annual 2.7% in the first quarter of this year, less than previously reported 3.0% in the second estimate and the 3.2% first estimate in April.
The latest annual rate was more than half the 5.6% rate reported and confirmed for the December quarter of 2009, indicating the extent of the slowdown that many US investors are only now coming to grips with.
So now we have growth in Europe easing or sluggish, China trying to moderate its high level of growth, Japanese growth slowing as well, along with exports (but signs that price deflation might be starting to ease).
First quarter growth in Australia and New Zealand slowed from the December quarter as well.
And on Friday, the Melbourne Institute said Australia’s March-quarter growth of 0.5 % was weaker than the 0.8% it forecast last month and this had prompted it to lower its estimate for 2010 growth to 2.5% from 2.8%.
But Australia has unemployment close to 5% while the US has a jobless rate of 9.7% and growth in the first quarter was far more dependent on stock rebuilding than on new demand.
In contrast Australia’s economy is at least being driven by some new demand, overlain by the surge in national income from higher export prices for iron ore and coal.
The revised third estimate for the US was less than market forecasts and caused some economists to cut their first estimate for the June quarter (which ends on Wednesday) to a high 3%.
Many US analysts reckon second quarter earnings growth will be around 26% from the second quarter of 2009. It could very well be, but of greater interest will be any sequential growth from the first quarter of this year.
The revised figures showed an economy that was more dependent on businesses rebuilding stocks and less driven by fresh demand from consumers and businesses.
The first estimate for second-quarter growth is due July 30, when the Commerce Department will also issue its annual revision to growth figures covering the past three years.
Consumer spending, which accounts for about 70% of the economy, rose at a 3% annual rate, down from the second estimate of 3.5% and 1.6% in the December quarter.
The weaker first-quarter output was also the result of more imports, although upward revisions to exports and private inventory investment provided a boost.
Analysts were especially disappointed with signs that shifting inventories had a greater impact on growth, leaving real final sales – the clearest indicator of demand in the economy – about half as strong as previously estimated.
David Rosenberg, chief economist at Gluskin Sheff in Toronto, noted that real final sales have grown at an average annual rate of 1.2% in the last four quarters. That is less than a third of the rebound in demand experienced during the recovery after the second World War.
“Once you strip out the huge contribution from inventories, you can see what is really happening in the economy and it is far from encouraging,” Mr Rosenberg said.
"Real final sales are now estimated to have come in at a tepid 0.8% annual rate – down from the prior revision of 1.4% and the 1.6% rate of growth when the data were first released at the end of April.
"Over the past four quarters, real final sales – the key guts of demand in the economy – have registered the grand total of 1.2% at an average annual rate in what is the weakest recovery in modern history and must be viewed in the context of an unprecedented amount of bailout, monetary and fiscal stimulus lavished on the economy.
"To put this 1.2% pace in perspective, this is less than one-third of the 4½% bounce in real final sales that is typical of a post-WWII recovery," Mr Rosenberg told clients.
"We continue to believe that a very weak housing market (as evidenced by the recent new and existing homes sales, housing starts and MBA mortgage applications) and modest consumer spending will keep GDP growth below 3% (the current Street view is 3.3% in Q2 and 3.0% in Q3).
"There were some sector surprises in the report with ‘old economy’ trumping the ‘new economy’ sectors. Machinery (+6.0%), primary metals (+0.8%), motor vehicles (+0.7%) orders were strong. Tech shipments (despite the iPad launch) fell nearly 3% in May, the fourth decline in three months while new orders rose by a modest 0.1%," he said.
The Commerce Department said that the Current-dollar GDP – the market value of the nation’s output of goods and services – increased 3.9%, or $US138.6 billion, in the first quarter to a level of $US14,592.4 billion.
In the fourth quarter, current-dollar US GDP increased 6.1%, or $US211.7 billion.
