Q1 GDP Advance Estimate Surprises to the Downside

April 29, 2015

by Doug Short

The Advance Estimate for Q1 GDP, to one decimal, came in at 0.2 percent, a substantial drop from the 2.2 percent of the previous quarter. Today's number was a disappointment for most economic forecasts, which were looking for a higher Advance Estimate. For example, both Investing.com and Briefing.com had forecast of 1.0 percent.

Today's weak number, however, was not a complete shock. Note that the Atlanta Fed's GDPNow indicator, last updated on April 26th, was forecasting Q1 GDP at 0.1 percent.

Here is an excerpt from the Bureau of Economic Analysis news release:

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and "Comparisons of Revisions to GDP" on page 5). The "second" estimate for the first quarter, based on more complete data, will be released on May 29, 2015.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]

Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. We've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.26% average (arithmetic mean) and the 10-year moving average, currently at 1.50 percent.

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Note: The headline 0.2% GDP is 0.248% at three decimal places. The callout in chart above is rounded to two decimal places.

Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The latest number puts us 14.1% below trend, the largest negative spread in the history of this series.

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A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change.

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In summary, the Q1 GDP Advance Estimate of 0.2 percent was below mainstream economic estimates.

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