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Q1 GDP Advance Estimate Surprises to the Downside

  • Written by Syndicated Publisher No Comments Comments
    April 30, 2015

    The Advance Estimate for Q1 GDP, to one decimal, came in at 0.2 percent, a substantial drop from the 2.2 percent of the previous quarter. Today’s number was a disappointment for most economic forecasts, which were looking for a higher Advance Estimate. For example, both Investing.com and Briefing.com had forecast of 1.0 percent.

    Today’s weak number, however, was not a complete shock. Note that the Atlanta Fed’s GDPNow indicator, last updated on April 26th, was forecasting Q1 GDP at 0.1 percent.

    Here is an excerpt from the Bureau of Economic Analysis news release:

    Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

    The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the first quarter, based on more complete data, will be released on May 29, 2015.

    The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]

    Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. I’ve also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.26% average (arithmetic mean) and the 10-year moving average, currently at 1.50 percent.

    Click to View
    Click for a larger image

    Note: The headline 0.2% GDP is 0.248% at three decimal places. The callout in chart above is rounded to two decimal places.

    Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The latest number puts us 14.1% below trend, the largest negative spread in the history of this series.

    Click to View
    Click for a larger image

    A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change.

    Click to View
    Click for a larger image

    In summary, the Q1 GDP Advance Estimate of 0.2 percent was below mainstream economic estimates.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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