The Commerce Department reported GDP grew at a disappointing 0.1 percent annual rate in the first quarter, less than 2.6 and 4.1 percent recorded the prior two periods. Overall, it appears 2014 may not be the breakout year President Obama and many Wall Street forecasters predicted, boding poorly for jobs creation.
A colder than normal winter slowed consumer spending, somewhat, and business investment in new equipment, structures and information technology plunged; however factors other than weather dragged on growth too.
Sequestration and the longer-term shift in federal spending from activities that support growth—infrastructure, research and development and the like—toward social welfare—health care subsidies, food stamps and the like—are depressing federal and state spending’s contribution to investment and productivity and ultimately, dragging down aggregate demand and growth.
The harsh winter slowed residential sales and construction, and recent builder surveys indicate new home purchases may not rebound as strongly this spring and summer as once expected.
Young, first time buyers are caught in a vice: lower incomes than their parents enjoyed when entering the labor force and heavy college debts. Consequently, as many finally leave their parents’ homes to set up households, more chose apartments. Construction costs associated with these are less than the suburban homes their parents might have purchased, and create fewer multiplier effects in the furniture, appliance and home improvement sectors. Also, apartment activity in existing cities and suburbs likely instigates less complimentary commercial development than new suburban subdivisions.
Simply, it’s time for the Obama Administration to pay the piper for using student loans to prop up demand and keep young adults out of the job market to inflate growth and suppress the unemployment rate over the last five years. Fewer housing starts and more focus on lower cost units do not bode well for growth.
The boost to consumer spending provided by recovering existing home values in 2013 should slow. Speculators are purchasing fewer foreclosed properties, and higher mortgage rates raise monthly payments and reduce the prices buyers can afford.
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