First Quarter U.S. GDP Growth

April 20, 2016

The earliest estimate by the Bureau of Economic Analysis of U.S. real GDP last quarter is scheduled to be released a week from tomorrow on April 28.  Other released data point to very weak growth, with a reasonable probability of a figure below 0.5% at a seasonal adjusted annualized rate (saar) and a chance even of a marginal contraction.  The data almost surely will confirm a deceleration of activity for the third straight quarter, following growth of 1.4% in 4Q15, 2.0% last summer and 3.9% in the spring of 2015.

The chances seem about even that growth in the first quarter will be softer than the weak 0.6% pace a year earlier.  That outcome highlights a tendency for growth, despite efforts to accurate correct for seasonal variation, to dip in the winter quarter.  Since the current economic upswing began right after mid-2009, the only two quarter-on-quarter contractions of real GDP occurred in first calendar quarters, those being in 2011 when GDP fell 1.5% saar and again in 2014 when a drop of 0.9% was registered.  In seven of the last ten years, growth in the first quarter was lower than for the year as whole.  If the distortion in fact reflects insufficient correction for seasonal headwinds in winter, one would think the systemic bias would fade as global warming becomes more intense.

Abstracting from that measurement issue, however, a growth rate last quarter of less than 0.6% will also depress year-over-year growth to less than 1.5% for the first time in fifteen quarters.  Thus, analysts will not be able to dismiss a weak report on April 28 as entirely a seasonal blip.  The Fed’s caution in recent months has roots in the secular component of the slowdown in aggregate demand.  The contrasting momentum of real GDP growth and the expansion of jobs is explained by very subdued labor productivity, which after holding unchanged in 2013 posted increases of only 0.8% in 2014 followed by 0.7% in 2015. 

The slow pace of U.S. growth in recent quarters is not exactly a new phenomenon.  From end-decade to end-decade, U.S. real GDP increased at an annualized pace of 4.3%  in the 1950s, 4.4% in the 1960s, 3.3% in the 1970s, 3.1% in the 1980s, and 3.4% in the 1990s.  But the pace so far this century has been only 1.8% a year, including 2.1% per annum over the first 6-1/2 half years of the post-Great Recession upswing.  The good news is that other advanced economies like Japan and Euroland are growing even more slowly than the United States, and the growth gap between America and dynamic emerging economies has diminished.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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