Economic Insights - May 2015

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The economy barely grew in the first quarter of 2015. Right now, we're forecasting that real GDP actually expanded at a 0.7 percent annual rate, which is a little faster than the initial report of 0.1 percent growth reported at the end of April.

Anytime that a forecast for real GDP growth is so slow, it's well within the realm of possibility that the economy actually shrank. That's exactly what happened a year ago: After a horrible winter, the consensus estimate was that real GDP grew at a 1.2 percent annual rate in the first quarter of 2014, while Business Briefings forecast 0.5 percent.

The first report showed growth of only 0.1 percent, as in 2015, but this was later revised to negative growth at a 2.1 percent rate in the first quarter of 2014.

At that time, some analysts interpreted the weak data as the leading edge of a new recession. The conventional wisdom was that the weather surely played some role in holding down growth, but an outright contraction that bad couldn't possibly be all due to the weather.

Of course, that was before the economy rebounded sharply in the middle two quarters of last year, growing at a 4.8 percent rate, thereby underscoring that it really was the weather all along.

In other words, don't get caught up in the angst about the 2015 first quarter data. Although the weather was not as bad this year as in 2014, this February was the coldest for most Americans since 1979. In addition, we had prolonged West Coast port strikes that disrupted both trade and production pipelines.

Meanwhile, the huge drop in oil prices appears to have curtailed energy production faster than consumers have translated their savings into purchases in other sectors.

But these issues are all temporary and, like last year, the economy will rebound. In the meantime, let's consider each of the specific components of GDP and their impact on first quarter results.

We'll start with consumption: Auto sales declined at a 3.6 percent annual rate in the first quarter while “real” inflation-adjusted retail sales outside the auto sector were down at a 3.2 percent rate. However, services — which make up more than two-thirds of personal consumption — were up at about a 4.3 percent rate.

So it looks like real personal...

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