U.S. Economy Worsens Before GDP Report
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The Federal Reserve is seeing worsening economic conditions in the United States shortly before the government releases its latest report on the country’s GDP.
The Dallas Federal Reserve announced a decline in manufacturing activity and a lower outlook for economic growth in Texas, with general business activity hitting negative territory for the first time in almost two years. That index fell to -4.4 in January, down 7.9 points from the prior month and 9.4 points year-over-year.
The Federal Reserve is seeing worsening economic conditions in the United States shortly before the government releases its latest report on the country’s GDP.
The Dallas Federal Reserve announced a decline in manufacturing activity and a lower outlook for economic growth in Texas, with general business activity hitting negative territory for the first time in almost two years. That index fell to -4.4 in January, down 7.9 points from the prior month and 9.4 points year-over-year.
An Oil Hit
Most economists are dismissing the findings as the inevitable result of cheaper oil. With an economy largely dependent upon oil production, higher oil prices naturally create larger profits for energy exploration companies.
In a private note to clients, one investment bank said the trend was “self-contained” and was not indicative of a broader weakness in the U.S. economy.
However, other analysts argue that the U.S. economy has become increasingly dependent on energy production, as energy production from shale and further oil exploration has made the United States a larger oil producer than at any point in history. As a result, the slowdown in Texas is likely to expand throughout the country, as knock-off effects from lower energy-related employment and incomes to cause a slowdown in spending in other sectors of the economy.
Snow and Winter GDP
While economic activity in Texas is hurt by falling energy costs, economic activity in the northeast is expected to grind to a halt. Winter storm Juno has brought blizzard conditions to an estimated seven states, which expects to cause power outages, shut down many roads and stop trains from running throughout New England and across the northeast corridor. Some parts of New England are expected to see over two feet of snow, especially in eastern Massachusetts. New York City expects to get a foot or more of snow.
Similar weather conditions caused GDP to fall in the first quarter of 2014. Eventually, the Bureau of Economic Analysis estimated GDP growth for that period fell by 2.9%, which also caused volatility in equity markets and growing anticipation of a recession later in the year.
While markets recovered, and growth picked up in the second quarter, many analysts have anticipated strong economic growth in 1Q15, resulting from the slow pace of sales a year ago. If weather conditions persist, those expectations could prove too optimistic, and further growth declines could add negative pressure on top of the slowdown in the southern states.
In the third quarter of 2014, the BEA saw 3.9% growth on an annualized basis. For the fourth quarter of 2014, a combination of cheap oil and moderate weather has encouraged many economists to upgrade their growth predictions for the period, especially for retail and consumer discretionary sectors. The Bureau of Economic Analysis will report GDP growth later this week. Most analysts are predicting 3.2% real GDP growth.
