Dismal Q1 GDP Report

by Zach Bethune, Thomas Cooley and Peter Rupert

GDP Report

The BEA announced in the advance estimate that real GDP increased at a s.a.a.r. of 0.1% for 2014 Q1. In addition, the final estimate for Q4 real GDP showed a 2.6% growth rate, unrevised from the second estimate. The Q1 growth rate was the lowest since 2012 Q4.

gdprealchgm-2014-04-30

Personal consumption expenditures increased at a 3.0% clip, with the services component at 4.4%, the highest rate since 2000. The big negatives came from fixed investment (mainly equipment and residential), inventories, and net exports.

cons-2014-04-30

services-2014-04-30

inv-2014-04-30

nfi-2014-04-30

rfi-2014-04-30

exports-2014-04-30

Such a dismal report certainly makes the decision of the FOMC more difficult, but they stayed the course and maintained the taper, as can be read in their release here. Is the dismal report from “weather related” disturbances? Or, is it a signal of an economy slowing down? As always in an FOMC statement the words are carefully chosen. For example,

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.

It is not clear what “…sufficient underlying strength in the broader economy…” means. The statement does mention “…adverse weather conditions…” but it seems like they are putting a lot of emphasis on the bad weather. As shown above, there were large declines in investment, both residential and non-residential. Moreover, measures of the labor market don’t seem that consistent with the statement. Here is a picture of the employment to population ratio from FRED; and here is one comparing the path after recessions:

epr-2014-04-30

Initial jobless claims rose 14k to 344k (median 320k) for the week-ended April 26, more than reversing the recent drop. Continuing claims rose 97k to 2,772k for the week-ended April 19. The four-week average rose to 320k to mark the second consecutive weekly rise, though we’ve remained below 340k since the second week of January.

claims4w-2014-05-01

The employment report comes out tomorrow…

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