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2015-04-29 18:30:01
Apr 29th 2015, 18:10 by C.W.
IN 2015 America has seen its share of sour economic data. Employment growth has
slowed and investment spending is stalling. Consumers are not opening their
wallets. And there was more bad news today: the first estimate of first-quarter
GDP showed that the economy is now growing at a snail's pace of 0.2%
year-on-year.
What s behind this blip? The very cold weather at the beginning of the year
forced many Americans to stay at home instead of going to the shops. The strong
dollar is also hitting firms: a third of revenues from companies in the S&P 500
index come from abroad. Corporate profits fell by 1.6% in the fourth quarter of
2014 and were 6.4% lower than in the same quarter of 2013. As profits have been
squeezed, investment has also stalled.
Measly wages (see chart) are another important factor. Lots of the jobs created
in the past year or so have been in low-wage professions, like retail. And
there is still plenty of slack in the American labour market. The number of
part-time workers who would rather be full-timers so-called part-time for
economic reasons fell much more slowly than the official unemployment rate
following the recession.
The worry will be that the Federal Reserve has once again overestimated the
strength of the American economy. It once seemed possible that the Fed might
raise rates as early as today. Yet as poor data have slipped into the mix,
markets have pushed back their forecast for when the first interest rate
increase will come. This afternoon the Fed confirmed that its benchmark
interest rate would stay where it has been since late 2008, at just above zero,
for another few months at least. Weak growth is one concern. Weak inflation
another; the new GDP figures showed a deceleration in the Fed's favoured
inflation gauge: in both the headline figure, which was expected given the
dramatic decline in oil prices, and in the core.
Contrary to what many analysts had been predicting a while ago, June will
probably come and go without a rate rise. The Fed's statement expressed
continued faith that the economy is moving in the right direction, and toward a
2015 rate increase. Markets are sceptical. A few more data releases like this
one and the Fed will need to adjust its communications to explain why markets
have got it wrong or why the Fed has.