GDP Outlook Slashed as Trade Deficit Widens, Job Openings Fall

The Federal Reserve has again cut its growth outlook for the American economy as multiple signs of weakness come from numerous independent reports.  The Atlanta Federal Reserve’s GDPNow cut its outlook to 0.4% growth in the first quarter of 2016, the third cut that has seen growth expectations more than halve. That is far below economists’ consensus expectations of 1.9% growth, and is indicative of the GDPNow model’s reliance on real-time data and larger data sets.

The Federal Reserve has again cut its growth outlook for the American economy as multiple signs of weakness come from numerous independent reports.  The Atlanta Federal Reserve’s GDPNow cut its outlook to 0.4% growth in the first quarter of 2016, the third cut that has seen growth expectations more than halve. That is far below economists’ consensus expectations of 1.9% growth, and is indicative of the GDPNow model’s reliance on real-time data and larger data sets.

As a result of its big data approach, the GDPNow has been more accurate in predicting GDP growth rates since its inception, and the decline has alarmed many economists who have struggled with recent contradictory data, many of which is markedly negative.

This week, however, has shown more consistently pessimistic indications of a weak American economy, driven mostly by a collapsed middle class and lopsided trade relationships with foreign nations.

Job openings fell to 5.445 million in February, according to the Bureau of Labor Statistics. That was far below consensus and the previous reading of 5.604 million. The sharp decline in job openings is not attributed to a rising workforce and limited labor availability; a recent Bureau of Labor Statistics study showed that unemployment has risen, while weekly reports of jobless claims have confirmed a growing number of Americans are struggling to find work.

Instead of creating jobs to fulfill the need of a rising labor force, American firms are looking for fewer people, according to the new report.

While new hires rose to 5.4 million, the highest amount since November 2006, that was largely due to an increase in low wage positions in retail, accommodation, and food services. While American corporations are looking for more waiters, bellhops, and waiters, growth in high-income jobs did not appear in the BLS report.

While job gains are weak, housing is becoming increasingly expensive in the United States. A new CoreLogic report showed that home prices were up 6.8% year-over-year, a rate of increase over double the rate of income growth. CoreLogic noted in its report that home affordability was being buoyed by lower mortgage rates, which fell significantly in the first quarter of 2016.

“Fixed-rate mortgage rates dropped more than one-quarter of a percentage point in the first three months of 2016, and job creation averaged 209,000 over the same period,” said CoreLogic Chief Economist Dr. Frank Nothaft. “These economic forces will sustain home purchases during the spring and support the 5.2 percent home price appreciation CoreLogic has projected for the next year,” he added.

Low interest rates run counter to the efforts of the Federal Reserve, however, which are actively looking to make borrowing costs higher for Americans in an attempt to stop strong inflation before it appears. Boston Federal Reserve Chairman Eric Rosengren recently chastised the market for mispricing the pace of interest rate hikes, noting that a strong increase in borrowing costs was inevitable as improvements in the economy—including in the job market—justified making debt more expensive for Americans.