Real Q1 GDP 0.2% vs. Consensus 1.0%; Disaster in the Details

Courtesy of Mish.

The first quarter real GDP estimate of 0.2% was released today. In spite of all the extremely week economic reports lately, economists still could not figure out GDP was going to be near zero. The Bloomberg Consensus estimate was for 1.0%.

Note the lowest estimate was 0.2%. No one predicted negative. Who was it that predicted 2.4%? What planet is that person on?

So what else is there to do but blame the weather?

Heavy weather and the strong dollar took their toll on first-quarter GDP which, at only plus 0.2 percent, came in at the very low end of the Econoday consensus. This compares with an already soft fourth quarter which is unrevised at plus 2.2 percent.

Exports were the heaviest drag on the first quarter reflecting the strong dollar’s effect on foreign demand. The heavy weather of the quarter contributed to an outright contraction in business spending (nonresidential fixed investment) and an abrupt slowing in consumer spending (personal consumption expenditures).

Price data, reflecting lower energy prices, are soft with the GDP price index at minus 0.1 percent vs the Econoday consensus for plus 0.5 percent. Prices were also soft in the fourth quarter at an unrevised plus 0.1 percent.

Details include an unwanted surge in inventories tied to lower demand and also possibly to shipment constraints tied to the quarter’s West Coast port strike. Imports, likely limited by the port strike, did pull down GDP but to a much lesser extent than the prior quarter (imports are a subtraction in the GDP calculation).

Federal Reserve policy makers, in this afternoon’s FOMC statement, may downplay first-quarter weakness as temporary. Nevertheless, the complete lack of punch underway in early second-quarter indicators, together with the softness of the fourth quarter when there were no special factors not to mention the lack of inflationary pressures in the economy, offer plenty of fuel for the doves at the Fed who want to hold off the first signals of a rate increase.

Exports

Gee, who could have predicted Exports would be the heaviest drag?

Let’s take a January 31, 2015 flashback look: Diving Into the GDP Report – Some Ominous Trends – Yellen Yap – Decoupling or Not?

Exports added 0.37 percentage points to fourth quarter GDP. But note the trend. Because of the rising US dollar, export growth is dwindling. Will exports add or subtract to GDP next quarter?

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