How Bad Is the New GDP Growth Estimate?


When the U.S. Bureau of Economic Analysis (BEA) first released economic data for early 2014, in April, the agency estimated that the gross domestic product (GDP) had grown a paltry 0.1 percent. Upon closer inspection, it's even worse than economists originally thought. The revised GDP estimate for January through March, released yesterday, is an annualized rate change of negative 2.9 percent—the fastest decline since the recession. The drop is also the largest recorded in non-recession times since the end of World War II. 

Should we panic? 

Probably not yet. "Many signs since March, including reports of growth in consumer spending, business investment and hiring, indicate the first quarter doesn't mark the start of a new recession," writes Jonathan House at the The Wall Street Journal.

J.P. Morgan Chase economist Michael Feroli described the decline as "mostly a confluence of several negative, but mostly one-off, factors."

The most mentioned of these one-off factors is the bad weather we saw throughout early 2014, which folks say dampened consumer spending. "Overall, the same old story remains: The recovery is underway, but it's still very slow," writes Annalyn Kurtz at CNN Money.

"Most economists say the rebound has already begun," notes Ylan Q. Mui at The Washington Post's "Wonkblog." 

But this recovery has a way of moving out of reach just when we think we're getting close. The International Monetary Fund and the Federal Reserve have already pushed back their forecasts for liftoff from the grinding economy to next year. The new reading of first quarter GDP could move the ball even farther. A 3 percent annual growth rate is starting to seem like the promise made by the White Queen in "Alice in Wonderland": Jam tomorrow and jam yesterday, but never jam today.

Mui is far from alone in her skepticism of the positive spin being put on this data. 

The BEA—a division of the Commerce Department—always releases quarterly GDP numbers in three phases. As more data becomes available, the initial number is revised, and then revised again. Between 1983 and 2010, the average percentage change between initial and final GDP numbers was 0.3 points, according to George Washington University economist Tara Sinclair. So how to account for the unusually large gap this time?  

The downward revision was largely concentrated in two areas: Consumer spending and health care spending. Initial estimates said consumer spending—which accounts for more than two-thirds of U.S. economic activity—grew at a 3.1 percent pace. The new estimate places this a 0.7 percent.

Spending on health care services was revised down by 1.2 percentage points, for which the White House is giving a big old 'thanks, Obama.' 

Today's report thus shows that the historically slow growth in health care prices and spending seen in recent years, which is thanks in part to the Affordable Care Act, continued through 2013 and into early 2014. Slow growth in health care costs is making it easier for businesses to hire workers or pay a good wage and improving the Nation's fiscal outlook.

Improving the nation's fiscal outlook one negative GDP growth rate at a time! 

The BEA is expected to release an initial estimate for second-quarter GDP rate change in July. 

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  1. The way the media is spinning the economy is sickening. “X is down, but economy appears to be growing” is the typical headline at Reuters. Right when the revised Q1 GDP print came out, what was the reaction? “That’s old news!”. With the first print, Obama took credit as it showed healthcare spending had increased due to Obamacare. Now healthcare spending was down, and Obama congratulates himself for that as well.

    Most of these ‘economists’ who are blaming the weather somehow forgot to factor in it being cold and snowy at the end of the year.


      Don’t you want to see the country succeed? Of course not, that means you’d have to admit Obama is a Godmanchildboy!

      1. If we all just believe hard enough….

        1. …and hope, I forgot hope…

  2. One thing about the GDP numbers – much like the employment numbers, they’re probably better than we know, as more and more people are forced off the books by regulations, mandates, and taxes.

    1. A -2.9 GDP growth is bad. Though, as long as it’s followed up by a positive Q2 it’s not horrible.

      However, what’s amazing is the spin this is receiving. This is the worst 1 quarter dip we’ve seen in 20 years outside of 2008.…..gdp-growth

  3. All discussion I’ve seen online re 2014:I does not mention seasonal adjustment (SA). SA is how the BEA reduces the surge in 4th quarter economic activity relating to Christmas shopping and the tidying of desks before the end of the year, and inflates the depression in economic activity that occurs during the first quarter because of winter and the need to recover from the surge during the preceding quarter. Seasonal adjustment is a massaging of the data that requires estimation from historical. When an anomalous quarter appears, such as 2014:I, the SA procedure than be thrown off, and this may be the case here.

    It is also important to appreciate that the inputs to the quarterly estimates are often interpolated between annual benchmarks. This procedure is provisional, until a reliable data for 2014 are available. That will not be the case before August 2015, and the revisions that will be released in August 2016 could be material.

    1. It’s a lot easier to say you can’t trust any data that comes from a government agency.

  4. We have heard nothing from this administration but excuses for the lack of recovery from the recession.

    The tsunami in Japan was my favorite.

    When not in power the left screams every down tick is a harbinger of disaster.

    When they are in power it’s green shoots all the way.

    And the MSM just keeps blowing their trumpet. After 6 years of stagnation no one with any iota of independence or intellectual honesty could possibly still be seeing green shoots anywhere.

    These people are economic illiterates. Even the Keynesian with a Nobel has left behind any truthfulness and is nothing but a political tool.

    1. Remember when unemployment at 4-5% was actually understating the vast economic tragedy under a Republican president?

  5. A second negative GDP will define a new recession. What kind of contortions will the politicos do to spin ‘a recession is actually a sign of economic recovery’ should a second negative GDP materialize?

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