The U.S. economy has shrank at an annual rate of 2.9 percent in the first quarter of this year, according to the Commerce Department. This is the fastest rate of decline since the recession ended five years ago.
Joe Weisenthal of the Business Insider joins Here & Now’s Jeremy Hobson to discuss the forces behind the decline and what we can expect for the future.
JEREMY HOBSON, HOST:
The Commerce Department reported this morning that the economy in the U.S. shrank at a rate of 2.9 percent in the first quarter of the year - far more than first thought - and that is the sharpest decline since 2009.
Joe Weisenthal is executive editor at Business Insider. He's with us from New York to discuss.
JOE WEISENTHAL: Hello. How are you doing?
HOBSON: I'm doing well. But apparently, the U.S. economy was not and in the first quarter. And it wasn't that long ago that you and I were talking about this Goldman Sachs prediction - that the economy is growing at an above-trend pace and things were starting to look up. What happened here?
WEISENTHAL: Yeah. There's a lot to unpack. So the first thing to note is that, you know, we're almost in July here and that we're talking about what happened between January and March. So this is really, you know, backwards-looking data. But, you know, obviously it was shocking. There were a lot of interesting factors. The health care spending was a really big surprise because it was far less than initially estimated, which is strange because given that it was the first quarter of full Obamacare implementation one would have expected to see a pretty big spike in health care spending. So that's a real head scratcher. And what it means going forward; we're going to have to wait.
And then of course, there was the well known weather effect. That had a dampening effect on you know, fixed investment, anything having to do with building structures and so forth slowed down. And exports were weak and inventory accumulation was weak. So there were some timing things that went there.
So it's a stunning report. 2.9 percent is just far more than anyone thought, but in terms of what it says about the economy right now, it doesn't diminish the latest batch of strong numbers that we've had, necessarily.
HOBSON: Well, yeah, and we've been talking about that this week. We've had some very strong numbers in the housing market, on new home sales and existing home sales. There have also been some good jobs reports in recent months.
HOBSON: So would you say at this point, that that will - if we look back on it -probably end up being a blip, a weird dip in the economy, maybe as you say because of the winter weather that we had in a lot of the country? And that now we're going to be on a stronger course?
WEISENTHAL: I do think that we're going to look back on that as a weird blip. I mean, obviously you can't just totally dismiss a number like -2.9 percent; you have to take it seriously. But on the other hand, again there's such old data and there's been so much data since then that's clearly more robust. There was an interesting nugget that came out yesterday. There was a - consumer confidence hit its highest level since the financial crisis. And then, buried in that report was the fact that for the first time, more respondents said that they thought the economy was good than thought the economy was bad.
So I'd look at these indicators and I'd take them far more seriously than the GDP report, which is lagging. And when you actually, you know, talking to people and for the first time more people say the economy's good - that's a strong sign that we've turned some sort of corner and that we shouldn't worry too much about the Q1 report.
HOBSON: Although even if consumers are confident, another thing that has come up over and over again is that a lot of them can't get loans that they need to go out and make purchases and do stuff that they want to do.
Is that still a problem, that banks aren't giving a lot of people loans?
WEISENTHAL: Yeah, it's still an issue. It's still - credit is very constrained compared to where it was during the boom, but the way to look at that is, actually that's a good thing in that this is pent-up, this is a potential tailwind that hasn't even kicked in yet.
So you look at a lot of these factors that are very depressed - credit is still tight, household formation still very low - but what that means is, these are factors that have still yet to kick in that could potentially lift the economy further up.
HOBSON: Joe Weisenthal is executive editor at Business Insider, joining us from New York to talk about the latest GDP report from the Commerce Department. Joe, thanks so much.
WEISENTHAL: Thanks for having me.
HOBSON: You're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.