The US economy grew at an annual rate of just 0.1 percent in the first quarter of this year, according to data released Wednesday by the Commerce Department. This was the second-worst quarterly growth rate since the 2008 financial crash, and significantly below the 1.1 percent rate predicted by a Wall Street Journal survey of economists.
The figure points to the fundamental reality that nearly six years after the eruption of the world economic crisis, the US economy remains mired in slump. Since 2008, the US economy has had an average annual growth rate of just 1.1 percent, compared with an average rate of 3.3 percent for the entire post-World War II period.
Exports plunged by an annualized rate of 7.6 percent, the sharpest fall since the 2008 crisis, according to the report. Business spending on buildings and equipment fell by 5.5 percent. Consumer spending on goods fell by 0.4 percent.
These declines were partially offset by a spike in spending on utilities, attributable to the very cold winter, and increased health care spending. The latter was largely due to an increase in the number of people paying health insurance premiums as a result of the implementation of the Obama administration’s Affordable Care Act.
“If health care spending had been unchanged, the headline GDP [gross domestic product] growth number would have been -1.0 percent,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told the Wall Street Journal .
Even as job creation barely keeps up with population growth, the few jobs that are being created are disproportionately low-wage, temporary or part-time. Since 2008, 1.9 million high- and average-paying jobs in the private sector have been eliminated and replaced by 1.8 million low-wage jobs, according to a report issued earlier this week by the National Employment Law Project.
The Labor Department said earlier this month that the US added 192,000 jobs in March while the unemployment rate remained unchanged at 6.7 percent. Last week, initial jobless claims rose slightly, to 304,000.
Economic growth has been dragged down by persistent weakness in the housing market. New home sales fell by 14.5 percent in March from the month before, according to figures released by the Commerce Department last week.
Mortgage lending, meanwhile, has fallen to a 14-year low. Only $235 billion in home loans was issued in the first quarter of this year, the lowest level since 2000. This is a 25 percent decline since the end of last year. The fall-off in new mortgages has been partially driven by the rise in mortgage rates, with the average interest on 30-year fixed-rate mortgages now at 4.3 percent, up from 3.3 percent last May.
The rise in interest rates has paralleled the Federal Reserve’s reduction in its monthly cash infusions into the financial system known as Quantitative Easing. The Federal Reserve’s policy-making Federal Open Market Committee (FOMC) concluded its two-day meeting Wednesday with the announcement that the Fed would reduce its monthly asset purchases by $10 billion, to $45 billion a month, in line with its earlier announcements.
Some economists have warned that the Federal Reserve’s “tapering” of Quantitative Easing will have a significant impact on the real economy, as the artificial inflation of housing and asset prices caused by the policy wears off. On Monday, economist Michael Pento wrote that “the tapering of asset purchases will lead to a collapse in asset prices and a severe recession.” He added, “Since the economic ‘recovery’ was predicated on the rebuilding of asset bubbles, a long delayed and brutal recession will start to unfold later this year.”
Federal Reserve chair Janet Yellen said in a press conference after the FOMC meeting that the US economy had “slowed sharply during the winter in part because of adverse weather conditions,” but that “economic activity has picked up recently.”
Yellen stressed, however, that the Federal Reserve expects to keep the federal funds rate near zero “for a considerable time” after the scheduled end of Quantitative Easing. The rate has been essentially zero since December 2008.
Stocks responded to Yellen’s assurances with a moderate rally. The Dow Jones Industrial Average closed up 45 points, hitting a new record high for the first time this year.
In sharp contrast to the Federal Reserve’s reaffirmation that it would continue to provide virtually unlimited cheap credit to Wall Street for the foreseeable future, the US Senate on Wednesday shelved a Democratic-backed proposal to increase the minimum wage to $10.10 per hour. The bill failed to get the 60 votes needed to overcome a Republican filibuster.
The Democrats’ proposal to raise the minimum wage is a cynical electoral maneuver, intended to allow the party to posture as a force for greater economic equality in the run-up to the 2014 midterm elections. In an article published Monday, the Wall Street Journal called the proposal a “wedge issue,” which, while “likely to be defeated,” is “one that Democrats see as a winner on the campaign trail.”
Following the vote, President Obama declared: “If your member of Congress doesn’t support raising the minimum wage…you have to let them know they’re out of step, and that if they keep putting politics ahead of working Americans, you’ll put them out of office.”
Even if the Democrats’ minimum wage proposal were passed, it would still leave the minimum wage at a lower level than it was, in real terms, in 1968. At $10.10 an hour, a worker laboring 34 hours a week—the average in America—would earn an annual pre-tax income of $17,856, significantly lower than the government’s absurdly low poverty threshold for a family of three.