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 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%.