AIIS Steel Market Update- April 2017

Economic growth slowed to a crawl during the first quarter, with gross domestic product (GDP) increasing by just 0.7 percent, the lowest rate in three years, according to the Bureau of Economic Advisers (BEA).

Consumer spending, which accounts for about 70 percent of the nation’s economic activity, grew by only 0.3 percent in Q1. In the fourth quarter of 2016, spending increased by 3.5 percent, while the overall economy expanded by 2.1 percent.

While the numbers to start the year appear discouraging, calculating growth during the first quarter has been problematic for the BEA for some time. It has attempted to revise its seasonal adjustments to make Q1 numbers more reflective of economic conditions, but The Washington Post noted that difficulties in getting these adjustments right “may have shaved as much as 1 percentage point off growth” during the most recent quarter.

In addition, other factors may support a cautiously optimistic attitude. Business investment increased 9.4 percent, making up for sluggish consumer spending, which has typically been the driver of growth in recent years. Also, part of the slowdown resulted from a reduction in government spending and slow restocking of inventory, neither of which is likely to continue for long.

The BEA will update its growth estimates for the first quarter in May and June.

The economy added 98,000 jobs in March, and, despite that low number after two months of strong job growth, the unemployment rate fell 0.2 percentage points to 4.5 percent, the lowest level in nearly 10 years, the Bureau of Labor Statistics reported.

The Federal Reserve’s Federal Open Market Committee (FOMC), at its May 2-3 meeting, noted that, “the labor market has continued to strengthen even as growth in economic activity slowed.” As expected, the committee declined to raise interest rates after doing so in March for only the third time since the end of the Great Recession.

The Fed is thought to be looking to raise rates at least two more times this year. Following its May meeting, the FOMC released a statement asserting, in its usual vague way, that, “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Fed Chairman Janet Yellen, meanwhile, recently used a car analogy to describe the central bank’s current approach to the economy.

“Before, we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could,” Yellen said. “Now, allowing the economy to kind of coast and remain on an even keel – to give it some gas but not so much that we are pressing down hard on the accelerator – that’s a better stance of monetary policy.”