Spring awakening

Weak US Q1 more a blip than reason to flip

Savings from lower gasoline prices will soon translate into more consumer spending.

The slowdown has been abrupt. After three quarters in which annualised real GDP growth averaged 3.9 per cent, the first period of 2015 will probably show expansion at an annual pace of just 1.1 per cent, according to the median result of polling by Reuters. The 126,000 jobs created in March were the fewest since 2013.

A relatively rough winter may sound like a lame excuse for weakness, but the Federal Reserve mentioned the weather 71 times in its April Beige Book on economic conditions. More than snow, though, the response to the collapse in crude oil prices has been a surprise.

Contrary to expectations, little of the money consumers saved on gasoline was spent elsewhere, while the oil and gas production industry has cut back at least as fast as expected. The government counts 30,000 jobs lost already this year. The non-spending on energy has boosted savings. For the first two months of the year, Americans socked away more than the modest amount added to their income. The annualised $770 billion saved in February was the most in two years and 22 per cent more than in 2014.

What happens next? One idea is that Americans will finally decide cheaper fuel is here to stay and start to spend more. Rising consumer sentiment supports that theory. The April reading from the University of Michigan was the second highest since 2007.

Another possibility is that Americans are saving for down payments on new houses. While the homeownership rate has fallen to 64 per cent, 74 per cent of Americans hope to be homeowners, real estate website Trulia says. Up to now, though, the housing recovery has been subdued.

There may be a delay, but stronger employment numbers should soon encourage savers to get back into the housing market. That would help the residential construction business, adding jobs and output. With Americans feeling better and holding fatter wallets, the US economy looks poised to move forward as soon as this spring.