First-Quarter GDP Proves U.S. Economy Fragile

US Economy fragileFor most of 2015, I have been writing about how the U.S. economy is growing at a very slow pace, if it’s growing at all. The just-released U.S. gross domestic product (GDP) numbers for the first quarter of 2015 confirm this; the economy grew at an annual pace of just 0.2% in the first quarter of this year. But a closer look at the GDP numbers reveals something worse than meager growth.

U.S. Economy Growing or Contracting?

There are several areas of concern in the GDP numbers.

If I take out the inventory buildup component of first-quarter GDP (that’s how much inventories have gone up within businesses), there was no growth in the U.S. economy in the first three months of 2015. Private inventories have been increasing significantly. In the first quarter of 2015, they grew by $110 billion after increasing $80.0 billion in the fourth quarter of 2014. If I take out the surge in private inventories, GDP would have grown at only 0.05% in the first three months of 2015. (Source: Bureau of Economic Analysis, April 29, 2015.)

Consumption, the biggest portion of the GDP calculation, increased only 1.9% in the first quarter of 2015, compared to an increase of 4.4% in the fourth quarter—a plunge in consumption of over 55%.


The 0.2% increase in first-quarter GDP is from advance economic data collected by the Bureau of Economic Analysis (BEA). There are two more revisions to the first-quarter GDP numbers. I expect revisions to the downside once all the final data is in.

Economic Data Remain Bleak

The real problem with economic growth in this country is the weak consumption. Americans are struggling and many still can’t afford basic necessities like food. As of January of 2015, over 46 million Americans were still using food stamps in the U.S. This represents 14.5% of the entire U.S. population. (Source: U.S. Department of Agriculture, April 10, 2105.)

Since the so-called recovery began for the U.S. economy, the biggest influx in job creation has been in retail jobs and part-time jobs. The individuals with these jobs are not making enough money to make a positive impact on personal consumption.

Outlook for 2015: Lackluster

To me, first-quarter GDP numbers are confirmation of the growth (or lack thereof) in the U.S. economy. What the mainstream media and politicians have been telling us is happening just isn’t true. There is no real growth in the U.S. economy.

Is it just me or does it seem that since the Federal Reserve stopped printing paper money, the U.S. economy has stalled? After all, corporate earnings growth and revenue growth both turned negative in the first quarter of 2015.

The Federal Reserve is stuck between a rock and hard place. Starting last year, the Fed told the world that the U.S. economy is doing better and that it would start to raise interest rates. But now, in 2015, the economy has stalled. Does the Fed face the embarrassment of being totally wrong on growth and cancel its plan to raise rates or does it raise rates to save face?

When it comes to interest rates, I believe four things:

1) The Federal Reserve will raise rates to save face and show the world that the U.S. economy is growing and that an interest rate hike is needed to cool that growth.

2) The Fed will look at the growth in U.S. jobs as its key gauge of growth. The closer we get to a five-percent unemployment rate, the quicker that rate increase will come.

3) The markets have already priced in a quarter-point increase in rates.

4) A quarter-point increase in rates will have very little impact on the U.S. economy. It’s the increases after the first rate hike, if there are more, which will cause problems.