The Bureau of Economic Analysis
(BEA) released its advance estimate for first quarter GDP growth. The U.S.
economy expanded at an annualized rate of 0.2% during the first quarter of 2015.
Based on early indicators, expectations for first quarter growth were low but
this reading was exceptionally weak. Bad weather certainly had an influence on
the bottom line number, but weakness in the manufacturing sector was evident
early in the quarter. Disruptions in the oil markets and to trade flows also
played a role in muting first quarter growth.
Net exports (exports minus imports)
subtracted 1.3 percentage points from first quarter growth. Most of the
contraction can be traced a decline in exports, although with the resolution of
the West Coast dock disruptions, both export and import volumes are expected to
rebound in the second quarter.
Business fixed investment declined
by 2.5% mostly due to a sharp contraction in structures (-23.1%), which was
only partially offset by a slight uptick in spending on equipment (0.1%) and a
stronger increase for intellectual property products (7.8%). Private
inventories increased, adding 0.74 percentage points to first quarter growth,
while residential construction added just 0.04 percentage point.
Government spending and investment
was another source of weakness. Total government spending fell by 0.8%. At the
federal level, spending increased by 0.3% with nondefense spending rising by
1.9% to counter a 0.7% decline in defense spending. At the state and local
government levels expenditures contracted by 1.5%.
Against these declines, consumer
spending grew by a modest 1.9%, contributing 1.3 percentage points to first
quarter growth. During the fourth quarter of 2014, consumer spending expanded
by 4.4%. Gasoline prices largely stabilized during the first quarter and so
failed to provide an avenue for increased consumer spending. Additionally, poor
weather in many parts of the country kept consumers from shopping or traveling.
The economy is expected to rebound
in the second quarter, but the surprising weakness of the first quarter is
causing many forecasters to rethink their estimates for the strength of the
bounce back. The BEA emphasized that this is only the first advanced estimate for
economic growth in the first quarter and that it is based on incomplete data so
patience is called for as we await the first set of revisions.
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