Like a horror movie with multiple sequels, The Economy: Spring Swoon IV probably won’t be as surprising or as scary as its predecessors.
Repeating the pattern of the past three years, the U.S. is cooling off as the weather turns warmer, with job growth slowing, retail sales falling and manufacturing output dropping after gross domestic product surged an estimated 3% in the first quarter. What’s different this time? The slowdown isn’t unexpected: Economists have had it penciled into their forecasts for at least a month.
The deceleration is coming in response to an identifiable cause -- the biggest federal-budget tightening in more than 60 years -- rather than inchoate fears about a break-up among countries that use the euro, a Treasury-debt default or a hard landing for China’s economy. And the U.S. looks better prepared to withstand it, thanks in part to a rebounding housing market.
"There definitely has been a slowdown in the past month," said Russ Koesterich, global chief investment strategist at New York-based BlackRock Inc., the world’s largest money manager with $3.8 trillion U.S. in assets.
"I don’t think it is going to be as dramatic or necessarily as frightening as some of the ones we had back in ’10, ’11, and ’12, which were really exacerbated by a lot of geopolitical issues."
That’s good news for the stock market. While shares may fall in response to weaker data, a selloff "would represent a potentially attractive buying opportunity,” said Jerry Webman, chief economist at New York-based Oppenheimer Funds Inc., which has $208 billion U.S. in assets under management.
Koesterich agrees. He sees stocks suffering a "mild correction" of 5% to 10% during the next few months before resuming their advance.
News from the U.S. Labor Department on April 5 kicked off the market chatter about a swoon. Employers in March added the fewest workers in nine months, increasing payrolls by just 88,000. That was followed by an April 12 Commerce Department release showing that retail sales dropped last month by the most since June and a Federal Reserve report on April 16 that factory output fell 0.1 percent in March.
The Federal Open Market Committee in March reiterated its plan to purchase $85 billion U.S. in bonds every month and keep buying securities until the outlook for the U.S. labor market improves "substantially." It also pledged to keep interest rates near zero as long as unemployment is above 6.5% and inflation isn’t forecast to exceed 2.5%.
The unemployment rate was 7.6% in March, and the Fed’s preferred price measure -- the personal consumption expenditures price index -- rose 1.3% in February from a year ago.
