The Bureau of Economic Analysis (BEA) released the advance estimate of real GDP growth in the first quarter of 2016, reporting a seasonally adjusted annual rate of 0.5%. Economic growth has declined steadily from its recent peak of 3.9% in the second quarter of 2015.
Declining activity was broad based enough to be troubling: slowing personal consumption expenditures (PCE), declines in fixed non-residential investment outside the energy extraction sector, net exports and national defense spending. But the single largest subtraction from GDP growth came from the energy extraction sector (mining exploration, shafts, and wells), shaving 3.36 percentage points from growth.
Since the collapse in oil prices in mid-2014 the energy extraction sector has slowed dramatically, shaving an average of 2.64 percentage points from annualized growth beginning in 2015. Regardless of what happens in the rest of the economy, sustained robust GDP growth will be out of reach until this sector hits bottom.
Macbeth may want cheap gas and home heating oil but it’s raining a poisonous stew on economic growth.