By Neil Irwin
Another year, another winter slump.
That’s the most basic conclusion to draw from new numbers on first-quarter gross domestic product released Wednesday morning. The American economy grew at only an 0.2 percent annual rate in the first three months of 2015, which was a good bit less than the 1 percent analysts forecast, and the worst showing since, well, the first quarter of 2014.
That is more than a coincidence. The weak economic readings to start both this year and last reflect two consecutive years of unusually bad winter weather in heavily populated parts of the country, combined with evidence that the formulas used to adjust for the normal seasonal variations may be creating a distorted picture regarding the January-through-March quarter.
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Statistical Puzzle: Why You Can’t Put Faith in Reports of First-Quarter Economic SlumpsAPRIL 23, 2015
The real test for the economy is whether the first quarter will, as was the case last year, turn out to be an aberration, with a catch-up effect happening in the form of apparently strong growth in the spring and summer months. In 2014, a 2.1 percent annual rate of contraction in the first quarter was counterbalanced by an average 4.8 percent growth in the second and third quarter, making for a quite solid year over all.
It was unusually cold and snowy in late January and February in the Northeast. A scene from a grocery store parking lot in Cranberry, Pa., on Jan. 26. Credit Keith Srakocic/Associated Press
So economy-watchers — whether it is the officials at the Federal Reserve trying to decide when the coast is clear to raise interest rates, businesses trying to weigh expansion plans, or families trying to decide whether it makes sense to buy a house — are going to have to look elsewhere to figure out whether the economic expansion, six years in, is finally becoming more robust.
The other data we have available is also sending mixed signals. Job growth has been vigorous for months, but the latest report showed softening in March. April data is due May 8. Various surveys of industrial activity and retail sales have shown a similar picture of weak activity, though that too is hard to disentangle from the effects of uncommonly bad weather (in other words, were retail sales negative in the first months of 2015 because of underlying weakness, or because people just didn’t want to go to shopping centers or car dealerships in often brutally cold weather?).
Even if the top-line numbers of the latest G.D.P. report don’t tell us a whole lot, the fine print does shed some light on the forces shaping the economy in 2015.
Exports fell at a 7.2 percent annual rate, which surely in part reflects the steep run-up in the value of the dollar on global currency markets in the second half of 2014; that shift could weigh on overall growth throughout the year. A strong dollar makes American-made goods more expensive in overseas markets. Over all, trade subtracted 1.25 percentage points from economic growth, and because it takes time for currency shifts to ripple through trade patterns, it could be a negative for some time.
The biggest component of G.D.P., personal consumption spending, held up O.K., the winter notwithstanding, rising at a 1.9 percent pace. That is a step down from the previous three quarters, however, and suggests that the steep decline in fuel prices in the latter half of 2014 isn’t creating a boom in consumer spending, one of the big mysteries for the economy.
In effect, the economy will be fine if consumer spending strengthens to offset the drag on trade coming from the strong dollar, but there was no real evidence that was happening in the first quarter of the year.
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Another detail of the latest report offers a sunnier story. Investment in commercial structures — think office buildings, hospitals, factories — fell at a whopping 23.1 percent annual rate, subtracting 0.75 percentage points from overall G.D.P. Forecasters had expected a decline, but not one that steep; that alone helps explain why they were too optimistic about overall growth. The drop reflects in part a pullback in investment in mines and oil wells owing to falling energy prices. But the good news is there isn’t much reason to think that reflects the underlying trend in the commercial building industry.
For example, the American Institute of Architects billing index has showed continued growth in its forward-looking survey of activity in the industry. The first-quarter contraction in the sector looks weather-induced and temporary, which means things maybe weren’t as bad as the overall number suggested.
The forecasts of truly robust economic growth that were commonplace at the start of the year aren’t off the table yet. But anyone predicting that outcome has to be at least a little nervous: In the months ahead, data will need to improve to match those sunny forecasts, or 2015 will start to look like a big disappointment.
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