Once again, the first three months of the year were a dud for the
Gross domestic product — the headline metric on the economy’s
output — increased by just 0.7% in the first quarter, according
to the Department of Commerce. Growth hasn’t been that sluggish
since the first quarter of 2014 when it actually shrank.
But every first quarter report in the post-financial-crisis
economic recovery has been weak. In fact, GDP has averaged a 0.6%
annualized rate since 2013, despite trend growth rate of 2% to
2.5% over that same period, according to Jim Baird, the chief
investment officer at Plante Moran Financial Advisors.
That’s because the Commerce Department has not yet fully resolved
how to deal with residual seasonality, or how to adjust for
spikes and plunges that distort what’s really going on in
the economy. It could be one reason even Federal Reserve Chair
Janet Yellen recently dismissed GDP as “a pretty noisy
Here’s how seasonality works: we know that consumers tend to
spend more around Christmas. But it’s not because their incomes
increase leading up to those holidays. So the Commerce Department
has make adjustments to reflect the fact that people are spending
more just because they want to give gifts — instead of assuming
that something underpinning the economy has suddenly changed.
This residual seasonality means it would be a mistake to reach a
conclusion about what the first-quarter report means for the
rest of the year.
“The underlying economy, I think, is significantly better than
this report suggests,” said Dan North, the chief economist
at Euler Hermes North America.
Personal consumption rose 0.3%, the weakest pace since December
2009, not long after the economy escaped recession. The big
drag here related to spending
on cars, which dropped in the first three months of the
year. Also, retail sales fell in February and March.
“The consumer is expressing excitement and exuberance about new
possibilities, a new administration, and new policies, but still
hesitant because those policies clearly aren’t going to go in
place for a while,” North said. Economists expect that the
labor market and income growth would support a rebound in
spending in the coming quarters, although that’s not
Meanwhile, business investment got a jolt from a record increase
in spending on oil and gas exploration.
This is not a typo: Q1 real investment in mining structures (oil wells, mostly) rose at a 449% annualized rate.
— Ian Shepherdson (@IanShepherdson) April 28, 2017