Upon further review, 1st-quarter GDP collapsed…again

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Upon further review, 1st-quarter GDP collapsed...again

By Steve Eggleston

Last month, the Bureau of Eco­nomic Analy­sis esti­mated that real GDP in the first quar­ter of 2015 increased by an annu­al­ized 0.2%. In the sec­ond of three reg­u­lar looks, which incor­po­rated most of the eco­nomic data from March, and to a lesser extent Feb­ru­ary, that wasn’t avail­able last month, the BEA revised that to a 0.7% decline. When rounded to the near­est hun­dredth of a per­cent­age point instead of the near­est tenth, GDP change went from +0.25% to –0.75%. If that holds up in next month’s final revi­sion, it will be the sec­ond con­sec­u­tive 1st-​quarter drop and the third 1st-​quater drop after the Great Reces­sion “ended”.

The biggest rea­sons for the down­ward revi­sion were the change in pri­vate inven­to­ries and net exports. In the first look, change in pri­vate inven­to­ries gave GDP a 0.74 percentage-​point boost, with the change in non-​farm inven­to­ries giv­ing a 0.76 percentage-​point boost. In the sec­ond look, the over­all change in inven­to­ries only gave a 0.33 percentage-​point boost, with the change in non-​farm inven­to­ries giv­ing a 0.36 percentage-​point boost. It wasn’t because peo­ple spent sign­fi­ciantly more on goods — the goods por­tion of per­sonal con­sump­tion expen­di­tures went from con­tribut­ing +0.05 per­cent­age points to GDP change to +0.10 per­cent­age points.

Most of that increased spend­ing appears to have gone toward imported goods — net exports went from tak­ing only 1.25 per­cent­age points away from GDP growth to tak­ing 1.90 per­cent­age points away from GDP growth, dri­ven mostly by a growth in imports. The busi­ness press put the blame for that on the reopen­ing of the West Coast ports after an extended work slowdown/​work stop­page and the strength of the dollar.

A com­menter on the Hot Air GDP post won­dered how the fifth quar­ter of neg­a­tive real GDP growth dur­ing the Obama Pres­i­dency, and the third since the Great Reces­sion ended, com­pares to pre­vi­ous Pres­i­den­cies. There are a few ways to look at that:

- 5 neg­a­tive real GDP quar­ters (over 25 quar­ters) are tied with George W. Bush’s 5 neg­a­tive quar­ters (over 32 quar­ters) and Richard Nixon’s 5 neg­a­tive quar­ters (over 22 quar­ters) for the second-​most among Pres­i­dents since 1953. Dwight Eisen­hower, the first Pres­i­dent whose term was entirely cov­ered by quar­terly GDP esti­mates, had 11 neg­a­tive quar­ters (over 32 quar­ters), and 8 neg­a­tive quar­ters over his Presidency’s first 25 quar­ters. Also, GDP shrank in each of the first 3 quar­ters of Ger­ald Ford’s Pres­i­dency fol­low­ing Nixon’s resignation.

- How­ever, the econ­omy under Obama has been his­tor­i­cally weak, with the worst first-​25-​quarter per­for­mance of the 5 modern-​era 2-​term Pres­i­dents, plus the Nixon-​Ford and John Kennedy-​Lyndon John­son admin­is­tra­tions. Real GDP grew at an annu­al­ized 1.77% over Obama’s first 25 months, a far cry from Nixon/Ford’s 2.20% (2nd-​worst com­bined admin­is­tra­tion) or George W. Bush’s 2.42%. Despite 8 neg­a­tive quar­ters, Eisenhower’s econ­omy saw an annu­al­ized 2.66% GDP growth in his first 25 months.

- While it is true that the Great Reces­sion pushed annu­al­ized real GDP growth through­out George W. Bush’s Pres­i­dency down to 1.76% (or 0.01 per­cent­age points below Obama’s 25-​quarter mark), nom­i­nal (current-​dollar) GDP grew at a far bet­ter rate dur­ing Bush’s 8 years even with the Great Reces­sion and the “reces­sion” of 2001 — +4.12% annu­al­ized for Bush ver­sus +3.15% annu­al­ized for Obama.

- Lest one thinks tak­ing out the Great Reces­sion helps Obama in this cat­e­gory, guess again. Even though sev­eral ear­lier recov­er­ies were bro­ken up by reces­sions, each quar­ter that was 23 quar­ters after the end of every post-​World War II reces­sion had much bet­ter real GDP growth than the cur­rent 2.19% annu­al­ized post-​Great Reces­sion growth. The second-​weakest recov­ery, from the 2001 “reces­sion” clocked in with 2.79% annu­al­ized growth over the 23 quar­ters after the “reces­sion” ended. The 19571958 reces­sion, which had the second-​largest post-​WWII GDP drop behind the Great Reces­sion (-3.7% to –4.3%), had an annu­al­ized growth of 4.62% in the 23 quar­ters fol­low­ing it despite the reces­sion of 1960 being in the mid­dle of that.

- There was only one other time there were 3 quar­ters of real GDP decline between reces­sions — between the reces­sion of 19531954 and the reces­sion of 19571958, with declines in the 1st and 4th quar­ters of 1956 and the 2nd quar­ter of 1957. Of note, the reces­sion of 19571958 began in August 1957, 2 months after the third non-​recessionary GDP decline.

Speak­ing of nom­i­nal GDP, for only the sec­ond time since quar­terly GDP esti­mates began in 1947, it declined out­side of a reces­sion­ary period, falling by an annu­al­ized 0.87%. The only other time that hap­pened was the first quar­ter of 2014, when it fell by an annu­al­ized 0.80%.

By Steve Eggleston

Last month, the Bureau of Economic Analysis estimated that real GDP in the first quarter of 2015 increased by an annualized 0.2%. In the second of three regular looks, which incorporated most of the economic data from March, and to a lesser extent February, that wasn’t available last month, the BEA revised that to a 0.7% decline. When rounded to the nearest hundredth of a percentage point instead of the nearest tenth, GDP change went from +0.25% to -0.75%. If that holds up in next month’s final revision, it will be the second consecutive 1st-quarter drop and the third 1st-quater drop after the Great Recession “ended”.

The biggest reasons for the downward revision were the change in private inventories and net exports. In the first look, change in private inventories gave GDP a 0.74 percentage-point boost, with the change in non-farm inventories giving a 0.76 percentage-point boost. In the second look, the overall change in inventories only gave a 0.33 percentage-point boost, with the change in non-farm inventories giving a 0.36 percentage-point boost. It wasn’t because people spent signficiantly more on goods – the goods portion of personal consumption expenditures went from contributing +0.05 percentage points to GDP change to +0.10 percentage points.

Most of that increased spending appears to have gone toward imported goods – net exports went from taking only 1.25 percentage points away from GDP growth to taking 1.90 percentage points away from GDP growth, driven mostly by a growth in imports. The business press put the blame for that on the reopening of the West Coast ports after an extended work slowdown/work stoppage and the strength of the dollar.

A commenter on the Hot Air GDP post wondered how the fifth quarter of negative real GDP growth during the Obama Presidency, and the third since the Great Recession ended, compares to previous Presidencies. There are a few ways to look at that:

– 5 negative real GDP quarters (over 25 quarters) are tied with George W. Bush’s 5 negative quarters (over 32 quarters) and Richard Nixon’s 5 negative quarters (over 22 quarters) for the second-most among Presidents since 1953. Dwight Eisenhower, the first President whose term was entirely covered by quarterly GDP estimates, had 11 negative quarters (over 32 quarters), and 8 negative quarters over his Presidency’s first 25 quarters. Also, GDP shrank in each of the first 3 quarters of Gerald Ford’s Presidency following Nixon’s resignation.

– However, the economy under Obama has been historically weak, with the worst first-25-quarter performance of the 5 modern-era 2-term Presidents, plus the Nixon-Ford and John Kennedy-Lyndon Johnson administrations. Real GDP grew at an annualized 1.77% over Obama’s first 25 months, a far cry from Nixon/Ford’s 2.20% (2nd-worst combined administration) or George W. Bush’s 2.42%. Despite 8 negative quarters, Eisenhower’s economy saw an annualized 2.66% GDP growth in his first 25 months.

– While it is true that the Great Recession pushed annualized real GDP growth throughout George W. Bush’s Presidency down to 1.76% (or 0.01 percentage points below Obama’s 25-quarter mark), nominal (current-dollar) GDP grew at a far better rate during Bush’s 8 years even with the Great Recession and the “recession” of 2001 – +4.12% annualized for Bush versus +3.15% annualized for Obama.

– Lest one thinks taking out the Great Recession helps Obama in this category, guess again. Even though several earlier recoveries were broken up by recessions, each quarter that was 23 quarters after the end of every post-World War II recession had much better real GDP growth than the current 2.19% annualized post-Great Recession growth. The second-weakest recovery, from the 2001 “recession” clocked in with 2.79% annualized growth over the 23 quarters after the “recession” ended. The 1957-1958 recession, which had the second-largest post-WWII GDP drop behind the Great Recession (-3.7% to -4.3%), had an annualized growth of 4.62% in the 23 quarters following it despite the recession of 1960 being in the middle of that.

– There was only one other time there were 3 quarters of real GDP decline between recessions – between the recession of 1953-1954 and the recession of 1957-1958, with declines in the 1st and 4th quarters of 1956 and the 2nd quarter of 1957. Of note, the recession of 1957-1958 began in August 1957, 2 months after the third non-recessionary GDP decline.

Speaking of nominal GDP, for only the second time since quarterly GDP estimates began in 1947, it declined outside of a recessionary period, falling by an annualized 0.87%. The only other time that happened was the first quarter of 2014, when it fell by an annualized 0.80%.