Ottawa - An unusually harsh winter across many regions of the United States and the end of emergency unemployment insurance slowed the US pace of growth in the first quarter of 2014. The Conference Board of Canada estimates that the US economy grew at an annual pace of less than 2% in the first quarter of 2014.
However, the constraints on growth have already started to fade as the weather improves. Real GDP is expected to increase by 2.9% this year, and even stronger growth of 3.3% is anticipated in 2015. These gains in real GDP are a strong improvement from the 2% annual pace of growth that has been the norm since the end of the Great Recession.
Solid job growth in both February and March presents strong evidence that the slump in economic activity this past winter will be temporary. In February, the economy added 197,000 new jobs despite the snowstorms that shut down much economic activity, especially in the Northeast region. And an additional 192,000 positions were created in March.
Despite the improvement in labour markets, long-term unemployment remains a major concern and is the main factor behind the relatively high unemployment rate of 6.7% nearly five years after the recession officially ended.
Machinery and equipment spending to ruse over 5%
Stronger business investment spending will also boost the US economy over the next two years. We expect real spending on machinery and equipment to expand by 5.2% this year and 6.5% in 2015. Profit margins are high as unit labour costs have barely increased over the past decade, leaving most businesses flush with cash.
The fiscal situation is also improving quickly at the federal level, where the deficit has declined from well over $1 trillion in 2009 to a projected $611 billion in 2014. As a share of GDP, the deficit has tumbled from around 10% of nominal GDP in 2009 to less than 3% today.