Last week’s report on economic growth in the first quarter of 2015 was very weak, if not entirely surprising, coming on the heels of the poor March jobs report (only 126,000 jobs created, the lowest since Dec. 2013) and a rash of disappointing economic metrics this winter (housing starts, manufacturing, exports all down). The government’s preliminary estimate showed GDP barely grew in the first quarter, rising only 0.2 percent on a seasonally-adjusted annual rate.
But the economy is not stalling and it’s certainly not time to panic. If not exactly desirable, this latest data is consistent with the pattern of this fitful recovery: two or three quarters of moderate-to-strong growth followed by one quarter of subpar growth. Remember, GDP actually fell in 1Q14 before bouncing back strongly the next quarter. More importantly, the limited growth largely reflects “transitory factors” (in the words of the Fed): an exceptionally cold winter, the West Coast port strike, and the plunge in oil prices. We should fully expect stronger growth to resume this spring.
- Economic growth was weak pretty much across the board. Consumer spending, exports, and business investment all eased in the first quarter.
- Despite the poor showing this past quarter, GDP is up by about 3 percent over the past year, well above the 2 percent that prevailed in 2012 and 2013.
- Even with annualized job growth of only 1.1 percent in March, job gains over the past 12 months were the greatest of any year since the late 1990s.
- The seeds for more accelerated growth have been planted by the pain born of low oil prices this winter. GDP was hurt by the strong drop in mining investment (nearly 50 percent). But the payoff will come later in the form of greater consumer spending as households begin to spend their savings, and businesses benefit from lower petroleum costs.
- Leading economic indicators remain at post-recession highs, even if their growth (not level) has been moderating. Significantly, consumer confidence remains very high (if somewhat volatile), suggesting greater spending to resume in the second quarter. Residential and commercial construction seem especially likely to bounce back with better weather. Also, the strong dollar contributed to weak exports, but the dollar has weakened a bit recently, which should fuel greater exports.
- With the Fed attributing the first quarter slowdown largely to temporary issues and expecting at least modest growth to resume, they continue to signal a rate hike is likely later this year. But the latest data almost certainly pushes with date back past the June meeting and perhaps September as well.
As with any national economic reports, local and regional conditions may vary. But overall economic conditions and foundations remain strong and bode well for the rest of 2015 and into 2016.