By Kenneth Hunter
This week’s update from Wells Fargo Economics Group’s Mark Vitner suggests slowing in economic growth due to broadening of trade deficits and reductions in capital spending.
“A big part of the slowdown has been a turnaround in trade, where we have seen a widening of the trade deficit that cut a little bit off the fourth quarter growth, and it’s probably going to be a drag in the first quarter as well,” said Wells Fargo Senior Economist Mark Vitner.
“Some of (decline in capital spending) is tied to lower energy prices and oil companies cutting back on their capital spending budgets,” Vitner said. “It’s something we’re going to deal with over the course of the year, but CapEx really hasn’t really been a strong suit throughout the recovery.”
Vitner and his group lowered their First Quarter 2015 GDP forecast to an annualized growth rate of 1.5%, lower than outlooks offered by most other economists.
“Going into the first quarter, most folks were around 3%, and the latest look that I saw in the consensus had growth around 2.5%,” Vitner said.
In January, Richmond Fed President Jeffrey Lacker shared the consensus view of The Federal Reserve for National GDP growth of 2.5% to 3% for the coming year.
Lacker stated growth rates could increase above post-recession averages and return to historic trends closer to 3% as a result of increased consumer spending and a decline in the savings rate. Strengthening labor markets, leading to workforce limitations and higher wages in specialized fields and growing sectors, may also have an impact.
Lacker also expressed concern over continued challenges, including the lack of full recovery in the housing market, indicated by sluggish sales activity and limited new construction. Also, while export activity has made significant gains in the past couple years, potential declines due to weak markets abroad could restrain recent growth in domestic manufacturing.
Lacker indicated the Federal Open Market Committee has no pre-set timetable for raising the federal funds rate above the long-held mark of 0-0.25%, though the rate could increase if inflation becomes an issue. Current measures indicate consumer prices remaining at or below 2% growth in the coming year.
Vitner expressed concern in regards to the status of the Fed funds rate. “For all the improvement that we’ve seen, the economy is still fairly fragile and moving away from the zerobound is difficult,” he said.
The latest revision for Fourth Quarter GDP from the Bureau of Economic Analysis was an annualized rate of 2.6%. Third Quarter GDP growth was revised to 5.0% annual rate.