The Home Buyer's Korner

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April 29th, 2015

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First-Quarter 2015 Gross Domestic Product

Good and Bad GDP2015 is mirroring 2014 when looking at the latest reading of U.S. economic growth. Just like the initial estimate of first quarter 2014 GDP, the economy grew in Q1 2015 at a very slowly rate.

Today, the Bureau of Economic Analysis released its advance estimate of the real gross domestic product for the first quarter and showed output in the U.S. increasing at a rate of 0.2 percent. It’s a huge disappointment based on where we were in the fourth quarter 2014 when real GDP gained 2.2 percent. The consensus was anywhere from 0.2 to as high as 2 percent and it makes you wonder just who these people were and what planet they live on that predicted a 2 percent growth rate.

Last year the GDP first quarter reading was ultimately revised to negative 2.1 percent and then economic growth rebounded sharply in the second quarter to 4.6 percent and the third quarter at 5 percent.

Some economist believe GDP weakness has been grossly exaggerated and there will be significant catch-up in Q2 and we all need keep our fingers crossed, but much of that will depend on the strength of the U.S. Dollar and what happens to with our largest trading partner being Europe.

Despite the sharp deceleration in Q1, many economists remain upbeat about the outlook for growth in the U.S and expect the economy will rebound in Q2 and beyond, similar to last year. They point to consumption and housing already showing signs of a rebound, but I’m not seeing it.  Other point to the second half of 2015 as a time when the negative drag from business investment associated with the collapse in oil prices will wane and should be more than offset by the positive boost to growth from lower energy costs.

Similar to a year ago many economists and investors are pointing to snowy winter weather as the root of the weakness and that does carry some merit, but I think the largest factor holding back growth is a strong dollar and timid global growth.

The European Central Bank last year introduced measures to spur its economy, which in turn was thought would bolster exports, create jobs, and weaken the U.S. Dollars.  Today, however, our biggest customer’s economic measures appear not to be working and showing up in our GDP.

The meager growth reflects positive personal consumption, expenditures, and private inventory investment, but declines in just about every other metric. This includes lower nonresidential fixed investment, lower state and local government spending and fewer exports. Meanwhile imports, which negatively impact GDP, increased as it’s cheaper for business to purchase overseas than to put Americans to work because of the strong U.S. Dollar.

The price index for gross domestic purchases which measures prices paid by U.S. residents decreased 1.5 percent, compared to 0.1 percent decrease in the fourth quarter. Excluding food and energy prices, however, the price index increased 0.3 percent in Q1 and 0.7 percent in Q4. Real personal consumption expenditures increased 1.9 percent compared with a 4.4 percent increase last quarter.

The Bureau of Economic Analysis which is a division of the Commerce Department will release its second estimate of Q1 GDP on Friday, May 29, 2015.

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