It just keeps getting worse.
The government released its third estimate of economic activity during the first quarter, and it surpassed our wildest expectations -- in all the wrong ways. The Bureau of Economic Analysis said Wednesday morning that the economy actually shrank at an annualized rate of 2.9 percent over the winter, the worst reading since the recession. Driving the decline was weak consumer spending, which the government now says grew by a meager 1 percent during the first quarter.
Let's get all of the caveats out of the way first: It was really cold during the winter. Hiring picked up dramatically as spring grew closer. Most economists say the rebound has already begun, and the big drop in the first quarter may just have fueled pent-up demand that is fueling the pickup this quarter.
But this recovery has a way of moving out of reach just when we think we're getting close. The International Monetary Fund and the Federal Reserve have already pushed back their forecasts for liftoff from the grinding economy to next year. The new reading of first quarter GDP could move the ball even farther. A 3 percent annual growth rate is starting to seem like the promise made by the White Queen in "Alice in Wonderland": Jam tomorrow and jam yesterday, but never jam today.
Particularly disturbing in this revision was the downgrade in consumer spending. The American shopper was supposed to be the bright spot in this recovery, reliably trudging to the malls and filling their online shopping carts despite government shutdowns and wintry snowstorms. Consumer spending jumped 3.3 percent at the end of last year, and the data initially showed a similarly strong increase during the first quarter. Wednesday's release showed the cracks in that pillar.
A significant portion of that revision was due to overestimates of how much Americans spent on health care, which has been tricky to measure since the rollout of the Affordable Care Act. But Eric Green, head of U.S. rates and economic research for TD Securities, said that even if those assumptions had been neutral, GDP still would have fallen at a 2.7 percent annual rate. There were other downward moves, as well. The 8.9 percent decline in exports was larger than previously reported. The buildup in inventories was a slightly bigger drag on growth, subtracting 1.7 percentage points.
"In short, GDP was recession-like in Q1, although most other data clearly signal that the decline is an outlier," wrote Jim O'Sullivan, chief U.S. economist at High Frequency Economics.
Recession-like. It is astounding that we are using any variation of that word five years into the recovery.