By Rick Manning
The monthly downward revisions of the nation’s economic growth show that instead of the originally reported .1 percent increase, the economy actually shrank by an annualized 2.9 percent in the first quarter of 2014. A result that has economic forecasters running back to their crystal balls to figure out what went wrong.
To put the 2.9 percent annualized decline into perspective, it represents the economy’s worse performance in the past five years, and signals that America could be slipping back into a recession (defined as two consecutive quarters where the economy contracts.)
At best, it once again affirms the suspicion that in spite of record highs on Wall Street, Main Street is hurting badly.
But the one sector of the economy that thrived in the first quarter was the federal government, non-defense spending area, which increased by 5.9 percent, making the decline even more devastating as it was wholly concentrated in the job producing private sector.
The latest bad news should not catch anyone off-guard as new Federal Reserve Chair Janet Yellen’s overall message during May 7 testimony before the Joint Economic Committee was that the economy was still weak, with concerns about housing and labor remaining.
On the labor front, while the unemployment rate has dropped, the percentage of Americans participating in the workforce remains persistently low with rates not seen since Jimmy Carter’s disastrous presidency.
Housing starts remain below projections, and increased federal taxes provides an increased headwind against future growth. While the short term gain from these taxes shows up in the federal coffers with a record projected take of more than $3 trillion, the ugly downside of removing that money from the private sector economy is that it is not being used to produce private sector growth. The exact kind of growth our economy desperately needs to avoid a technical recession in the first half of this year.
While the advanced estimate of second quarter GDP is not due until July 30, many economists are hoping that the heavy first quarter decline was largely due to economic disruptions caused by the long winter most of the country experienced. The hoped for return to “normal” activity due to the end of the unusually cold winter may be nothing more than a pipe dream as increased costs for food and electricity continues to climb with the impacts of Obama’s anti-fossil fuels campaign expected to accelerate this household and business cost.
However, the Federal Reserve and the economic sunshine pumpers might be right. After all, the economy will only have to grow by an annualized rate of 4.9 percent for the last nine months of 2014 to meet their projections of 3 percent growth for the year.
And those who still believe these rosy economic predictions undoubtedly are also the last remaining Americans who think that the IRS just magically lost all of the incriminating emails in their system, or more plausibly that if you wish real hard Santa Claus will bring you a flying unicorn for Christmas.
The author is vice president of public policy and communications for Americans for Limited Government
