The US economy just might do something in the second quarter that it hasn’t done too often of late: grow at a 4% or faster annual rate, adjusted for inflation. Economists at Deutsche Bank are looking for 4.2% real GDP growth in the period. And OECD economists aren’t far behind with a 3.9% forecast.
Now it used to be fairly common for the US economy to post a quarter of 4% or faster growth. In the 1980s (1981-1990), there were 18 such quarters. In the 1990s (1991-2000), another 18 quarters. When a big economy like America’s is growing 4% or faster, it’s really cooking. Indeed, those two decades are recalled as ones when the economy snapped out of its 1970s malaise.
But in the 53 quarters since then, the US economy has generated only six three-month periods of 4% RGDP growth or faster, including just two (4Q 2011 and 3Q 2013) during the Not-So-Great Recovery.
Of course, the bad winter weather is playing big role here. Deutsche Bank: ” … we continue to maintain the view that whatever growth was ‘lost’ in Q1 due to inclement weather will be made up in the current quarter.” Although the first print of first-quarter RGDP showed a 0.1% gain, new data suggests the economy may have shrunk by 0.2% or so.
And for the rest of the year? Well, the OECD gives the bullish case:
Economic activity is projected to pick up in 2014 once the effects of severe winter weather dissipate. Given ample corporate cash flow and an improved demand outlook, business investment should accelerate significantly. Sizable gains in asset prices have boosted household wealth, which, combined with steady progress on the labour market, should provide support to private consumption and residential investment.
Fiscal contraction is creating less of a drag on economic growth, although further consolidation at a slower pace will be needed to ensure fiscal sustainability. Monetary policy appropriately remains very accommodative, with slack remaining in the labour market and inflation remaining weak. The Federal Reserve began the process of reducing the pace of its asset purchases, which should continue through most of 2014. It will be appropriate to keep policy rates low for some time, but they are expected to begin to rise by mid-2015.
The OECD expects growth to average 2.6% this year and accelerate to 3.5% in 2015. The big question, of course, is how fast the US economy can grow over the long-term. The new Obama budget accepts a “new normal” growth potential of just 2.3%, much like the CBO does. That compares to average growth of 3.5% from 1950 through 2007. If those White House and CBO economists are correct, we might not see too many 4% quarters in the future. It should be a primary goal of policymakers to nudge growth closer to the postwar average and away from that new normal forecast. We can do better — and should.