US economy loses momentum in Q1, suggesting delay in recovery

27 April 2012 21:46  [Source: ICIS news]

WASHINGTON (ICIS)--The US economic recovery appeared to lose momentum in the first quarter of 2012, according to government data and chemical sector analysts on Friday, suggesting that a return to normal growth rates may be further delayed.

The Department of Commerce reported earlier on Friday that US gross domestic product (GDP) in the quarter ended 31 March grew at an annualised pace of 2.2%, less than the upwardly revised 3% growth rate recorded in the fourth quarter of 2011.

That GDP growth pace was lower than the 2.6% or 2.8% expansion that many economists had been expecting and indicated that the US recovery was cooling.

In normal economic times, the American economy would be expected to grow at what economists call a trend pace of 3-3.5%.

In 2010, the first full year following the end of the US 2008-2009 recession in June 2009, the nation’s economy grew at a trend rate of 3%.  But growth fell to 1.7% in 2011, well below trend.

The US economy should grow at 3% or better just to accommodate new workers entering the job market. To make any significant headway against the nation’s still high 8.2% unemployment rate, the economy would have to expand at a pace above 3.5% for four to eight quarters.

The first quarter 2012 GDP report, along with other recent economic data, “all seem to suggest a loss of momentum in the recovery,” said American Chemistry Council (ACC) chief economist Kevin Swift in a note to council member firms.

“Consumer confidence slipped as consumers’ short-term expectations dampened on continued labour market weakness and higher gasoline prices,” the ACC economic trends note said.

The 2.2% GDP growth pace in the first quarter was attributed largely to a bump in consumer spending, in part offset by declines in federal and state government budgets, weakening commercial property development and increased imports.

But that gain in consumer spending might not continue, Swift’s note indicated.

“Following a boost of consumer spending during the first quarter, consumers reported they were less likely to purchase autos or appliances over the next six months,” Swift said.

US auto manufacturing sector and durable goods production – which includes such household items as appliances – are major downstream consuming industries for chemicals and resins.

On the housing front, said Swift, referring to another major chemicals industry consumer sector, “despite greater affordability and historically low mortgage rates, new home sales slid” in March, as did existing home sales, new home construction and home builder confidence.

“The report on first quarter GDP was weaker than expected,” Swift noted.

Other than the gain in consumer spending, which accounted for most of the quarter’s modest improvement, “durable goods orders slipped on weaker investment in capital goods, in addition to sharply lower aircraft orders”.

“These indicators all point to slower growth than in previous months,” Swift added.

In addition to slowing growth in the US, the council’s weekly economic report noted that consumer confidence also has slipped in the eurozone, “reflecting heightened concern over debt problems in Greece, Italy and Spain”.

Further economic declines in the EU would have knock-on effect in the US economy.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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