The Q1 Disappointments Continue

by Thomas Cooley, Ben Griffy and Peter Rupert

The BEA reported today that real GDP for the first quarter (advance estimate) grew at an annual rate of only 0.5%. This continues the pattern of deeply disappointing first quarter results.  This, however, is not just a seasonal anomaly. GDP growth has been slowing steadily since the strong second quarter of last year. These results were expected but they are worrisome in several respects. While personal consumption expenditures were fairly strong, growing at 1.9%, the previous three quarters grew at a more robust 3.0%. Non-residential fixed investment fell 5.9% from the previous quarter and equipment investment fell by a whopping 8.6% – these do not bode well for future growth.




Residential fixed investment increased by 14.8%, a strong performance compared to previous quarters.  The core PCE index increased at a 2.1% annual rate suggesting that inflation may be getting near its target level. Exports fell by 2.6% holding back growth.

The steady downward march these last three quarters is cause for concern. But for the past several years dismal first quarters have been followed by rebounds. Will that pattern continue?

FOMC statement, April 27

The most recent statement from the FOMC delivered a weaker outlook than their previous statement. In addition, they removed the “headwinds” from global and financial concerns. Still, much of Europe and Japan remain weak.



When the Fed decided to hold off on rate increases they were clearly concerned about weak domestic fundamentals and waiting to see if the economy is going to continue to stagnate.  For the time being we must all play the waiting game and look for signs of renewed vigor in the monthly numbers. But what if the subsequent numbers show continued slow growth?  It isn’t clear that the Fed has much more that they can do. They are likely not ready to go to negative interest rates as other central banks have done. That leaves fiscal policy.

What Would Donald or Hillary Do?

This of course will be the great guessing game and subsequent reveal of the next many months. But so far the only revelation is an antipathy to trade on both their parts, which if brought to the fore could seriously hamper economic growth for decades to come.  But, it is time to start looking for – demanding – clues to their economic savvy beyond the campaign bloviating.

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