Growth likely to pick in spring, but economy still not ‘just right’

The last few years the U.S. economy has been marked by barren first quarters following by blossoming growth in the spring. The same pattern is likely to reemerge this year, but this time the green shoots might not be as vigorous.

Here’s the good news. Companies are still hiring plenty of new workers and all the extra cash has helped to boost consumer spending, the lifeblood of the economy. Home builders are hard at work as more Americans look to buy. Businesses have whittled down excess inventories that were a drag on the economy. Stock markets are back up, interest rates are back down and gas is still pretty cheap despite recent price increases.

That’s why economists polled by MarketWatch predict gross domestic product will pick up in the spring and grow about 2.5% in the second quarter.

Decent, not great. Weak first quarters in 2014 and 2015, by contrast, were followed by much larger increases of 4.6% and 3.9% in the ensuing second quarters. Read: Why poor first-quarter GDP is nothing to worry about

What’s going on? By some measures the economy is weaker now entering the spring than it was in the past two years.

Businesses, for example, has cut back on investment as profits have fallen. Earnings sank 3.2% in 2015 to mark the first decline since the Great Recession, government figures show.

If profits fail to recover, it’s only a matter of time before companies move to cut more costs. That could mean either less investment or fewer new hires, neither of which would be good for long-term growth.

Even the steady gains in job creation, at least lately, are arguably not all they are cracked up to be. There’s been a notable shift in recent months to new jobs in fields such as retail and hospitality that pay less and offer workers fewer hours. U.S. job openings also declined in February.

“In many ways the labor market recovery remains subdued, with some visible chinks in the armor beginning to show,” said Scott Anderson, chief economist of Bank of the West.

Nor can businesses look outside the country to shore up growth and profits. Most of the rest of the world is far worse off economically compared to the U.S. A strong dollar has curbed sales of American exports, and a global plunge in oil prices has dulled a domestic energy industry that had been one of the economy’s brightest stars.

Middling growth at home and an especially a sour global outlook has generated enough anxiety at the Federal Reserve to spur the bank to temporarily put off plans to sharply increase U.S. interest rates this year.

Also read: New York Fed’s Dudley calls for cautious approach to lifting interest rates

That’s given the economy a boost heading into the second quarter by pushing stock prices up and interest rates down, while causing the dollar to ease 5% off multiyear highs. Manufacturers appear to have gotten a shot in the arm, as exports rose in February for the first time since last fall.

A large batch of economic data this week won’t tell us much about the second quarter, however. Key reports such as retail sales and consumer inflation are for March, the final month of the first quarter.

Neither is likely to upset the consensus view: The economy is stuck in an endless loop of about 2% annual growth or less, well below the nation’s historic 3.3% average.

Just right? Uh-uh. The Goldilocks economy it’s not.