The Elephant in the room: near stagnant GDP growth

Earlier today the Department of Commerce released data on the latest GDP growth rate data for Q1. To say the numbers were weak is an understatement at best. GDP only grew at a rate of 0.2% in the last quarter, which was borderline stagnant.

Previously GDP had been growing at a rate of 2.2% in Q3 and 5% in Q4 of 2014. The weaker numbers took many by surprise. However, not all were wrong with the lower than usual growth rate. The Federal Reserve Bank of Atlanta had predictions that indicated that GDP growth would be ~0.1% for Q1.

Screen Shot 2015-04-29 at 7.20.29 PM

% Change in GDP Growth for Q1,Q2,Q3, Q4 in 2014 and Q1 in 2015

Atlanta Fed Q1 GDP predictions

Atlanta Fed Q1 GDP predictions

However, now that the data is released what does that mean for the rest of the year? Scott Sumner, an economist at Bentley University with a focus on monetary policy, believes that the GDP growth for the rest of the fiscal year would have to be at a rate of  4.8% per quarter in order to achieve an annual rate above 3.5%. This reality makes every economist become aware of the elephant in the room. Are Yellen & Co really going to increase rates this sooner rather than later even after such an ugly report and unlikely forecast in GDP growth?

Unless something is done to increase aggregate demand/ total GDP or reel the dollar back into control it might be an even uglier 2nd quarter. Next thing to keep an eye on is the upcoming data on inflation in May which might shed some light on when the Fed will increase rates.

-Jorge Rojas

Sources:

1. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=1

2. http://www.themoneyillusion.com/?p=29264

3. https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm

4.  http://blogs.wsj.com/economics/2015/04/29/economists-react-to-the-first-quarter-gdp-report-that-was-pretty-ugly/

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6 thoughts on “The Elephant in the room: near stagnant GDP growth

  1. tpercy31

    It would be interesting to see what part of GDP is growing the slowest, and what part of GDP is growing the fastest. If the near stagnant GDP growth is being caused by a reduction in government spending, it might not be a bad thing, considering it could be caused by a reduction in welfare benefits or something else that the government desperately needs to cut to continue to reduce the yearly deficit. If the stagnant GDP growth is being caused by a reduction in consumption or investment, however, than that could highlight a serious problem in our economy. Those could be caused by a reduction in consumer confidence, or prediction of bad future earnings by firms. This would be bad for the economy. It would be interesting to get the statistics in those individual factors of GDP to see as to what is causing this slowdown in growth of the GDP.

    Reply
  2. jonahchoe

    Just like we discussed in class, there should be some concern on the parts of Yellen and company concerning GDP. But last year tells us that the rest of the year should bode well leaving behind the terrible winter we’ve had — only time will tell.

    Reply
  3. rainde16

    I like what you had to say but at the same time you have to consider that the economy is recovering from a rough winter and there still is growth. The growth may be minuscule but there is still growth, the economy is not shrinking or getting worse.

    Reply
  4. johnturner27

    Last years 1st quarter was the first contraction that the US economy had since the financial crisis and therefore this near stagnant quarter is not worrisome. Economists have said that the weather has plays a huge factor in this and with the awful winter that we just had this statistic is not surprising.

    Reply
  5. ddowen17

    In my opinion, this should not be a topic of concern as of now, but it is definitely something to keep a close eye on. The strong dollar is the reason for a growth in imports relative to exports, which could be a leading cause for the stagnant growth in GDP. Also, since oil prices are low and people spend less on gas, they are more-so likely to save the extra dollars rather than use it for consumption in this current day economy. Low oil prices should promote a higher consumption on other goods, which it does, but not to the extent that would significantly increase C.

    Reply
  6. Victor Matheson

    Nice job. Here we see an obvious example of the power of blogging. Jorge can publish his thoughts about an economic statistic that had been released only earlier in the day.

    Reply

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