Remarks on the Weak 1Q U.S. GDP Data

April 29, 2015

Real GDP expanded just 0.2% last quarter, and nominal GDP edged up by a smaller 0.1% at an annualized rate.  Both results were below consensus.

Weak first quarters have become an habitual occurrence, which makes sense unless you happen to still believe that talk of climate change is a myth.  Seven of the last nine first calendar quarters saw real economic growth of less than 2.0%, including -5.4% in 2009, -2.7% in 2008, -2.1% in 2014, -1.5% in 2011, 0.2% in 2007 and this year’s entry of 0.1%.

A better sense of the recent trend in in real activity can be found by examining the latest two-quarter period, which experienced growth of 1.2% annualized.  This was only a fourth as strong as the 4.8% pace in in the middle two quarters of 2014.  Personal consumption climbed 3.2% at an annualized rate and  generated 2.1 percentage points of real GDP growth over those two quarters.  However, residential construction, non-residential business investment, and government spending collectively accounted for negative 0.1 percentage point of growth, and net exports exerted a 1.1 percentage point (ppt) drag on GDP.  Without a 0.3 ppt boost from inventories, overall growth over the past two quarters would have been less than 1.0%.  Between 3Q14 and 1Q15, exports and government spending fell 1.5% and 1.4% at an annualized rate, while business spending firmed only 0.6%.

The 1.3% annualized rise of nominal GDP between 3Q14 and 1Q15 was the weakest pace since the middle two quarters of 2009.

The personal consumption price deflator fell 2.0% between 4Q14 and 1Q15, and it posted a four-quarter rise of just 0.3%, donw from 1.1% in 4Q14, 1.1% in 1Q13, and 2.4% in 1Q12.  The core PCE deflator went up 1.3% on year lat quarter, similar to on-year rises of 1.2% in 1Q14, and 1.5% in 1Q13.  By comparison, the rise in the year to 4Q11 had been 2.0%.

Bottom line:  There has been a broad-based slowdown with the exception of consumer spending, and this deceleration of real economic activity has been accompanied by inflation that remains well below the Fed’s concept of price stability. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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