Wednesday, April 29, 2015


From the BEA, a disappointing first estimate of first quarter GDP: they have the annualized growth rate at a mere 0.2%.

Consumption, the largest part of GDP, was a bit stronger at 1.9%, but government purchases were a drag, falling at a -0.8% rate.  The strong dollar helped reduce net exports; exports fell at a 7.2% rate.  Another worrying note is that there was a substantial positive contribution from inventories - while this adds to GDP, it also means a greater stock of unsold goods which could lead firms to cut back production in the future. 

This isn't the first time in recent memory that first quarter GDP has seemed weak.  As Justin Wolfers notes, it seems like something may be off with the seasonal adjustment (i.e., the government attempts to take out the normal seasonal patterns, like the decline in retail after the holidays).  While the seasonal adjustment should take into account typical effects of weather, White House economic advisor Jason Furman notes that this winter was harsher than usual.

Another major indicator of economic activity is growth in payrolls, which averaged a reasonably healthy 197,000 during the first three months of the year.  So I don't think the GDP estimate - which is, as always, subject to substantial revision anyway - is cause for panic, but it is a cautionary signal to the Fed as it contemplates when to start raising the federal funds rate target.

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