Where is the Growth - Part II?

Written by Rick Welch on May 19, 2015

On April 30, 2014 I wrote about the disappointing read on Q1 2014 GDP.......here we go again.

The Advance Estimate of Q1 2015 GDP growth released recently by the Bureau of Economic Analysis (www.bea.gov) showed that economic growth in the US slowed during the winter months to an annual rate of +0.2%, the slowest growth recorded since, yes, Q1 of 2014 (-2.1%). A recent WSJ article (5/15/2015) offered this: "Forecasters in a related WSJ survey estimated the US economy may actually have contracted at a -0.3% pace in Q1 2015 due to hits from winter weather and the west coast port slowdown.  But the panel, on average, sees annualized economic growth of +2.8% in Q2, supported by job gains and wage growth. They also see the drag from weak trade and a strong dollar dissipating by the second half, delivering average economic growth at a +3% pace. The outlook for 2015 would be brighter if not for the strong dollar's impact on foreign trade and cheap oil's squeeze on the energy sector. The widening of the trade gap subtracted 1.25% from Q1 GDP growth."  The next reading of Q1 GDP growth (Second Estimate) is due for release on May 29th.

The slow Q1 continued the pattern over the last 5 years in which Q1 GDP growth has averaged +0.6%, while all other quarters averaged +2.9%.  The following data table, from a recent Charles Schwab Market Perspective entitled "Watching and Waiting", offers a good picture of recent and longer term GDP growth patterns quarter-to-quarter.

                                        Since Last Recession                                 Last 10 Years                          Last 20 Years

Q1                                                +0.6%                                                   0.0%                                        +1.3%

Q2                                                +3.0%                                                 +2.3%                                        +3.2%

Q3                                                +2.8%                                                 +2.1%                                        +2.8%

Q4                                                +2.8%                                                 +1.6%                                        +2.6% 

The big question is then are the  recent drags to Q1 GDP growth temporary or transitory in nature?  A good case is made for the harsh winter weather and port slowdown, less so for the strong dollar and energy sector woes.  The disappointing Q1 GDP growth rate would seem to follow closely the pattern over the last 10 years. The precedent is one of Q1 weakness is followed by more robust growth in Q2 though Q4.  Will the rebound come as history suggests?