Why the first-quarter GDP may get even uglier

gdp-q1-2014

Yesterday we learned that the US. economy came to a standstill during the first quarter. Now some analysts are saying it actually shrank.

The government’s official reading of domestic growth clocked in at a puny annual rate of 0.1 percent, falling short of even the most modest expectations. That number is a preliminary estimate based on incomplete data and will be revised twice more. After the release, many economists wrote off the number as a fluke and predicted the data would be adjusted upward.

That was yesterday. Today the Census Bureau released new data on construction spending that were weaker than not only the consensus forecast  but also the government’s estimates in its calculations of the nation’s gross domestic product. Ben Herzon of Macroeconomic Advisers said core construction -- which doesn’t include residential improvements and federal spending -- was soft in March, while the numbers for the first two months of the year were revised lower.

According to Macroeconomic Advisers’ analysis, that means instead of the 0.2 percent boost in private nonresidential construction spending assumed in the GDP calculation, there was likely a 5.7 percent decline. Ouch.

In addition, new data show retail sales were also slightly softer than expected, translating into a 2.9 percent increase in consumer spending instead of a 3 percent rise, Herzon said.

Do the math, and you’ve got an economy that contracted by 0.1 percent in the first quarter -- and that might be the optimistic case. Barclays economist Cooper Howes said his calculations show a 0.2 percent decline. In either case, it would represent the worst performance for the recovery in three years.

Bottom line: The recovery from the Great Recession has been consistent about one thing -- disappointing us. This year may not be any different.

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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