Severe winter weather in the densely populated North East of the U.S. undoubtedly contributed to this hiccup in activity, while on the West Coast, a labour dispute in the major ports disrupted trade flows into and out of the country. There was a huge surge in imports relative to exports in Q1, which acted as a major drag on GDP. More recent data from the Los Angeles ports suggests a fall in imports at start of Q2, so this factor should reverse.
A collapse in shale investment, thanks to the lower oil price, has also been a major headwind to growth, however with the recent stabilisation in the oil price, there are signs that we may be through the worst. Shale appears much more sensitive to changes in the oil price than other forms of production.
A strong dollar is also a concern, although the trade share of US GDP is relatively low compared to other major economies, including the UK, so I wouldn’t expect that to have been a major factor behind the weak Q1 GDP figure.
Meanwhile, the labour market data continue to point to ongoing economic expansion, and although there is no stable relationship between rising employment levels and GDP, productivity would have to have collapsed completely for any growth in employment to produce no extra output. We still expect the Fed to raise rates in the Autumn of this year.
