Economy Not As Bad In First Quarter As Initially Feared

The final revision to Gross Domestic Product for the first three months of the year showed that the economy did indeed shrink, but at a slower rate than reported in earlier reports:

While nothing to brag about, the economy’s performance in early 2015 was not quite as bad as the number-crunchers in Washington had thought.

The Commerce Department said Wednesday that the economy shrank at an annual rate of 0.2 percent in the first quarter of 2015, an upward revision from the 0.7 percent contraction reported last month.

The result, which was the third estimate of first-quarter gross domestic product, is hardly good news, but with the final revision now out, the prevailing view that the weakness was caused mostly by temporary factors — not more fundamental ones — seems to have been borne out.

Cold weather hurt retail sales in early 2015 as shoppers stayed home, while a labor dispute at ports on the West Coast hurt the trade balance. The repeated pattern of first-quarter weakness has also prompted government economists and statisticians to review how they compile the data for growth.

“Activity is bubbling beneath the surface, and the economy seems to be resilient in the face of global headwinds,” said Gregory Daco, who is based in New York, the head of United States macroeconomics for Oxford Economics, a private forecasting firm.

The final revision was driven largely by improved data for consumer activity, continued gains in the housing industry and additional restocking of shelves and warehouses by businesses.

“The first quarter was soft, but growth through the rest of the year should be much better,” said Guy Berger, United States economist at RBS in Stamford, Conn.

In recent months, fresher economic indicators have shown retail activity picking up, as well as healthy gains in payrolls and new-home sales. On Tuesday, the Commerce Department reported that new-home sales last month reached their highest level since 2008.

The good news in the real estate market is an important step forward. Housing led the rest of the economy down in the recession, and a plunge in construction contributed to the loss of millions of jobs.

While new-home sales remain well below their peak during the housing boom of the mid-2000s, their gradual recovery bodes well for overall economic growth. After shedding more than two million jobs during the recession and its aftermath, construction companies have regained about a half-million positions in the last two years.

Most economists are looking for the annual rate of growth to rebound to between 2 and 3 percent in the second quarter, which will end on Tuesday. That is a significant shift from the beginning of June, when many economists predicted that growth would barely top 2 percent for the April, May and June period.

Still, Mr. Berger cautioned that it remained to be seen whether some of the headwinds that hurt growth in the first quarter — like the stronger dollar — would persist throughout 2015. “The dollar’s impact isn’t played out,” he said. “Drags from trade tend to take awhile to fully materialize.”

This isn’t exactly anything to write home about, but it’s certainly better than the dismal first quarter we saw in 2014, and the economic data we’ve gotten over the past two months regarding the second quarter of the year would seem to indicate that we were once again witnessing an anomaly related at least somewhat to the weather and largely to economic factors that have not become a trend. One good sign in this regard came today in the form of the news that consumer spending had increased at a faster rate than any time in the past six years last month. Since consumer spending is a large part of the engine the drives the economy, this is a good sign for a positive future. We should get a better idea of where the second quarter is headed when we get the jobs report on July 11th.

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Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. DrDaveT says:

    Not unexpected.

    As others have noted, the seasonal adjustments for GDP growth have been screwy for a while, and the first quarter always looks bad. The economy is not booming, nor even revving, but it’s not contracting either. This is just more of the same slow, crippled recovery.