The Bureau of Economic Analysis (BEA) revised its estimate of fourth quarter growth upward to 2.1 percent, a 0.2 percentage point improvement on its previous estimate. This, though, was still significantly below the 3.5 percent growth in the third quarter. After a dismal first half of 2016, this put growth for the year at just 1.6 percent, a full percentage point below 2015. The BEA attributed the slowdown to “downturns in private inventory investment and in nonresidential fixed investment and decelerations in [personal consumption expenditures], in residential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports and accelerations in federal government spending and in exports.” Perhaps even more troubling, though, is that, in 2016, productivity fell for the first time since 2009, according to the Bureau of Labor Statistics (BLS). While capital and labor inputs increased by 1.9 percent last year, outputs grew by only 1.7 percent. In the past decade, annual productivity growth has averaged 0.4 percent. During that time, labor productivity growth has been 1.2 percent a year, a sharp drop from the 2.7 percent rate from 2000 to 2007. The BLS also reported that the unemployment rate dipped a tenth of a percentage point to 4.7 percent in February, as the economy added 235,000 jobs. The unemployment rate has been below 5 percent since April 2016. Before last year, the rate had not been below 5 percent since before the Great Recession, which caused it to spike to 10 percent. Moderate growth and strong labor demand may be enough for the Federal Reserve. The Fed raised interest rates a quarter-point in March, bringing the target range for the federal funds rate to 0.75 to 1 percent. This is only the third time since the recession that the Federal Reserve has raised rates, the first two coming in December 2015 and December 2016, but the central bank is expected to be much more active this year, with two or even three more hikes projected. (It should be noted, though, that as many as four increases were expected last year, but only one happened.) In its usual vague, often cryptic, fashion, the Fed’s Federal Open Market Committee stated after its March meeting that, “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.” Although some economists – not to mention businesses and consumers – lament the sluggish pace of the recovery, John Williams, who leads the Federal Reserve Bank of San Francisco, said on March 29 that the United States finally has a “Goldilocks economy” – not too hot and not too cold, but “just right.” “The data have spoken, and the message is clear: We’ve largely attained the hard-sought recovery we’ve been after for the past nine years,” Williams told the Forecasters Club. Williams also said, however, that the housing market “still isn’t quite back.” Housing starts increased 3 percent from January to February, but were down 6.2 percent from February 2016, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales, meanwhile, fell 3.7 percent in February, but, after a strong 2016, sales were still 5.4 percent above the level of a year earlier, the National Association of Realtors reported. “Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers,” the association’s chief economist said. “Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market.” The median price for an existing home in February was $228,400, a 7.7 percent increase from February 2016. Truck sales continued to increase their lead over car sales in February, with light-duty truck sales growing by 6.9 percent compared to a year earlier to 831,337 and car sales falling 12.1 percent to 502,300, according to Motor Intelligence. Through the first two months of the year, truck sales were up 6.4 percent over 2016, while car sales were down 12.1 percent. The dollar remained strong in March, ending the month trading at 0.93 euros, 0.8 pounds, 111.43 yen and 6.89 yuan. The “Trump rally” in the stock markets has waned recently. The election of the Republican real estate mogul helped the Dow Jones Industrial Average expand by more than 15 percent from Election Day to March 1. Russia-related controversies and intraparty feuds that stymied the GOP effort to repeal and replace the Affordable Care Act have spurred some doubts about how effective this administration will be in pushing through tax and regulatory reform, though, and the Dow dipped more than 2 percent in March. Similarly, the S&P 500 index, which rose almost 11 percent from Nov. 8 through March 1, fell 1.4 percent last month. Consumers, though, appear to be retaining their confidence that Trump will have a positive impact on the economy. The Consumer Board reported that its Consumer Confidence Index stood at 125.6, a 9.5-point increase from February and the highest it has been since December 2000. (The index’s baseline is 100 in 1985.) “Consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months,” The Conference Board’s director of economic indicators said. The University of Michigan’s Surveys of Consumers showed less dramatic growth in March, recording a 96.9 rating, an increase of only 0.6 percentage points from the previous month, but this was 6.5 percentage points higher than in March 2016. The recent increase in confidence, though, appears to have resulted, at least in part, from consumers embracing lowered expectations. “Like economists who have lowered growth prospects, consumers have done the same, and have thus judged lower rates of growth more favorably than they would have in an earlier era,” university researchers stated. Researchers also noted that, as with seemingly every other issue, the country is sharply divided in its economic outlook: “Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects, and lower inflation.” The election of a Republican president with a GOP House and Senate created high expectations for a pro-business federal government. The Trump administration, though, has stumbled in several areas during its first few months, and the unified government seems to have made Republican members of Congress much less united than they were when opposing President Barack Obama. As a result, the GOP policy overhauls that once seemed to be sure things have been downgraded to possible things. The right changes to taxes and regulations could, to borrow a phrase used by San Francisco Federal Reserve Bank President and CEO John Williams in the speech referenced above, “unshackle the economy,” but if GOP infighting continues to block legislation, the changes may not be as dramatic as many expected. One positive that could come out of this divisiveness, though, is that free trade conservatives in Congress may thwart the Trump administration’s efforts to turn the United States toward protectionism. This, alone, would be a boon for the economy, in that it would block policies that would not only be bad for businesses and consumers, but could even invite a recession. Source: American Institute for International Steel