2014Q1 GDP Down 1%: Why It’s Not That Big a Deal

May 29th, 2014 at 12:24 pm

OK, I admit that just this AM I said I was less bullish on the current US economy than some people, but that doesn’t mean I’m going to defenestrate over the negative revision to 2014Q1 real GDP growth from about zero in the first report to -1% in the revision out this morning.


Source: BEA

Here’s why:

–First, OTEers well know to discount the bouncy quarterly changes.  The figure above plots these quarterly changes (the bars) against year-over-year changes (the line).  The line shows we’re still slogging it out at around trend growth (~2%).

–The crap weather in Q1 always gets mentioned as part of this story.  I agree, but weather didn’t suck 3 ppts off of growth (2-3=-1).  More important, though partially weather-related stories include: large inventory draw downs (that will likely bounce back), weak investment (residential and non-res), and the trade deficit.

–The leaves consumer spending, which was solid, contributing 2.1 points to growth in quarter.  Take out inventories and trade and the quarterly growth rate was 2% (that’s final sales of domestic product).

End of the day, what I wrote earlier this morning very much holds, at least as I see it, and next quarter will almost certainly bounce back somewhat from this lousy report.  But the problem isn’t the aberrant -1% quarterly change.  It’s the fact that US GDP got back to something like trend growth rate before making up the ground lost in the great recession.  I see no downturn on the horizon–I do see a continued slog.

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9 comments in reply to "2014Q1 GDP Down 1%: Why It’s Not That Big a Deal"

  1. Larry Signor says:

    How many negative quarters of GDP growth signal a recession? A very strange event in a growing labor market. Inventories have been volatile (perhaps green shoots too soon?) and the trade deficit continues be a drag, but the labor market is showing signs of life. The housing market continues to disappoint, though it may be at a new normal. The growing labor market may be prey to the same phenomena, more jobs for lesser compensation will not readily yield GDP growth. The lack of GDP growth implies shrinking domestic investment and increased government expenditures with reduced revenue. Sounds like a potential death spiral without serious labor income growth. It’s a mistake to butcher your milkin’ cow. Feed her better, she gives more milk-fat.

  2. Dave says:

    Hi JB,
    With respect to the “solid” consumer spending in Q1, how much of that is related to the newly-ACA-insured getting tested, diagnosed, MRI’d, and prescribed? I have a sneaking suspicion that this is what’s pushing otherwise mediocre cs into “solid” territory (and thus may not last), but lack the FRED-fu to dig deeper on the subject. Any insights?

    • Jeff Goodby says:

      Wow. ACA derangement strikes again.

      And what if it is? You speak as if that’s a bad thing.

      • Nathan J. Kerr says:

        Not sure why you are attacking the poster as having “ACA derangement”. The truth is, single payer for chronic and catastrophic care should have been implemented with health savings accounts for point of care (primary care) with open pricing competition (think Lasik deals advertised) so we could end the costs to employers. The dumbest part of the ACA was the fact that 30 hours makes or breaks an employer so people like Teresa I met from Atlanta, GA has found three jobs all with the expressed statement in their employment offer that “THIS POSITION WILL NOT EXCEED 29.75 HOURS PER WEEK”.

        The ACA has been a drag on our economy. But until government can prove it can be bigger while remaining effective AND efficient, single-payer will not be a reality and employers will continue to automate where they can and hire part time otherwise. And the VA and military hospital scandals are not helping the single-payer cause.

    • rjs says:

      table 2, dave: http://www.bea.gov/newsreleases/national/gdp/2014/pdf/gdp1q14_2nd.pdf

      increase in health care spending added 1.01% to Q1 GDP…so without it, we’d be down 2%

      • Dave says:

        Thanks very much rjs, that’s exactly what I was trying to find out. And thank you too Larry for your reply.
        FWIW I goofed in my post, that should have read “My question is, more accurately, a request *TO* an economics expert …” – I am not an economics expert, that’s why I read JB’s blog!
        Apologies to all for the clumsy wordsmithery.

  3. Dave says:

    Thanks Jeff, not at all,
    I’m Canadian, so the derangement, if at all, has to do more with the fetish against universal health care from wherever it germinates.
    My question is, more accurately, a request from an economics expert as to to what extent the Affordable Care an Patient Protection Act impacts the current GDP read.
    There’s no denying that many, many Americans have, for the first time in (possibly) decades, the ability to insure themselves against catastrophic financial loss due to unforseeable medical circumstances. And that, hate to say it, has an impact on the US GDP figures, as a (likely) one-time event.
    Save your umbrage for the unconceiveably, amazingly, astonishingly effective fiscal headwinds sustainment (contra what we’re repeatedly, per FED statements), of the current crop of those who call themselves “conservatives” in the House and do us all a favour.
    With a “u”.

  4. Robert Buttons says:

    The current GDP is really, truly significant. The weather meme is simply false. Heating oil, rock salt, warm clothing all cost money and are part of GDP. Housing numbers were much worse in the west—where the weather was fine.

    QE and deficit spending all are (unsustainable) components of GDP, imagine how much the economy would contract if inflation spikes more (QE would be removed) or interest rates rise (the deficit becomes even more unsustainable).

    The economic narrative is just add “stimulus”, we will achieve escape velocity and the stimulus (be that from the fed or govt spending) can end. It’s pretty obvious that narrative has proven incorrect.