The Bureau of Economic Analysis released their first estimate of first quarter economic growth (GDP). As a reminder, this is their preliminary estimate with two revisions to follow over the next two months.
First quarter GDP is estimated to have risen .2%. This is far lower than the 2.2% growth rate of the fourth quarter of 2014 and below the consensus estimate of 1.0% from a Bloomberg survey of economists. We have to view this report with caution since we know that weather had an impact as did the West Coast port problems.
If we look behind the headline numbers, we see that positive contributions from consumer spending were mostly offset by the negative contribution from net exports. Private investment was up slightly while federal spending was down slightly. The net result was .2% economic growth.
Drilling down deeper into the data reveals the following.
Today’s report provides two takeaways to consider.
Now that the weather and the West Coast port problems are behind us, attention will focus on how the second quarter develops. We continue to believe that it would not be surprising to see the first half of the year show weaker than forecast growth due to the negative impact of a strong dollar and cut backs in the energy related sectors. If energy prices remain near current levels and overall jobs growth continues, then economic growth should be stronger in the second half of the year due to wage growth and more willingness to spend some of the energy savings.
The Federal Reserve has been very clear that the economic data will guide them on when to begin raising short-term interest rates. Today’s GDP report should ensure that the Federal Reserve does not raise rates in June or July. September appears to be the soonest that they would raise interest rates but, that will remain dependent on what the economic data shows over the next five months.
Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.