As the U.S. economy struggled to recover from the financial crisis at the beginning of the decade, there were three consecutive years that appeared to be carbon copies of each other. The years 2010-2012 had slow growth that was held back by extraordinary events that derailed recovery as it was beginning to build momentum. The flash crash, European sovereign defaults, the S & P downgrading of U.S. debt and the government shutdown and sequester all blunted economic momentum.

As May’s data began to trickle in, it appears the economy is in another “groundhog day” scenario and that may not be a bad thing.

Much like what happened in 2014, the unusually cold and snowy winter of 2015 put a damper on consumption and mobility that slowed gross domestic product (GDP) and output. After the second revision of first-quarter GDP growth on May 29, data showed the economy contracted 0.7 percent from January to March. This was after an initial estimate of 0.2 percent growth during the first three months. As much as the bad weather, continued strengthening of the U.S. dollar contributed significantly to the slowdown, as unfavorable exchange rates made American-made products more expensive than previously. The significant drop in oil and gas investment was another major contributing factor to the slowdown in output.

The main influence on the slowdown in activity was the U.S. consumer. Bad weather in the major population centers kept consumers out of malls and restaurants in January and February. Consumer spending rebounded in March, growing by 0.5 percent that month, but that was not enough to boost the quarter’s economic activity.

On June 1, the Commerce Department reported that spending in April was flat compared to March. Moreover, data showed that consumer spending growth over the preceding 12 months had slowed. But in the data were also indications that consumers were beginning to see real increases in wages – which would be consistent with the tightening labor force – and were using those additional wages to pay down more debt and boost the savings level to 5.7 percent. That pattern of behavior doesn’t help the economy at the cash register but is more positive than not for the long-term health of the economy.

May’s data on wage increase showed another slight creep in the overall wage increase to 2.3 percent year-over-year but showed a significant jump in the measure of private sector employees. The Employment Cost Index (ECI) is done quarterly and is a better measure of workforce pressures on wages since it measures wages for a sector with fewer increases fixed by contract. The ECI is more likely to reflect inflationary moves than the overall increase rate, since the overall measure includes public employees whose wages are driven less by supply and demand.


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