Similarly, monthly tallies of new vehicle purchases hit a plateau last summer, when those averaged an annual pace close to 16 million units. Since then sales have bounced around and not much improved. Now those are likely to rise again, but too much of Detroit’s recent profitability was premised on replenishing a vehicle fleet that grew old and too fuel inefficient during the long financial crisis, easier credit conditions than are likely to persist going forward, and high mark ups on option-laden vehicles. Those have run their course, and recent downward pressures on transactions prices and profits will persist, limiting the auto sector’s contribution to growth.
Preliminary data indicate the inflation adjusted trade deficit likely increased sharply in the first quarter. The cheaper yen and yuan engineered by Tokyo and Beijing, along with similar currency policies elsewhere in Asia, disadvantage U.S. manufacturers across the board and limit jobs creation. Absent a more credible strategy from the Obama Administration to counter this protectionism, Asian governments are happy to export unemployment to the United States.
Similarly, the Obama Administration’s unwillingness to approve drilling permits off the Atlantic and Pacific coasts and in the Eastern Gulf exacerbates U.S. import dependence and increases global environmental risks by concentrating drilling too much in developing countries. These increase the U.S. trade deficit and tax GDP growth and employment.
Halving the trade deficit by countering currency manipulation and developing more U.S. oil could easily add 1 to 2 percentage points to annual U.S. GDP growth, and create 4 to 5 million more jobs over 3 years.
Overall, consumer spending surged to 3.3 percent in the fourth quarter but pulled back to about 3.0 percent in the first quarter, and it may not improve a lot on a sustained basis for a long time. Similarly, surging imports and slow growing exports will likely plague the economy through the balance of this year and next.
Coupled with constraints on growth in housing and autos, those factors may keep GDP growth pinned below 3 percent and jobs creation close to 200,000 per month, instead of the 350,000 needed to lower unemployment to pre financial crisis levels.
Peter Morici is an economist and business professor at the University of Maryland, national columnist and five-time winner of the MarketWatch best forecaster award. He tweets @pmorici1