US economic growth has gone negative for the first time in three years. Revisions to the estimate of first quarter GDP, out this morning, put growth for the first three months of the year an annual rate of -1%. The initial estimate, released at the end of April, had the economy growing just barely, at an annual rate of just 0.1%.
Time to panic? Not really. The Wire’s Ben Cosman has the headline that sums up the reaction: “The economy shrank at the start of 2014, but no one seems too worried”. For one thing, this winter was terrible. The reason to keep calm and carry on producing gross product, says the WSJ’s Steve Russolillo, is that the negative revision is mainly about that bad winter weather and slow inventory growth. (Weather alone could have cut GDP by 1.5%, Reuters reports). Neither should hold back the economy in the second quarter.
The bad inventory numbers may actually help: “Lean inventories mean companies will have to order new goods and supplies to meet any increase in demand”, writes the WSJ’s Kathleen Madigan. After this morning’s bad news, Goldman Sachs’ chief economist Jan Hatzius is increasing his second quarter GDP estimate from 3.7% to 3.9%. Other economists are doing the same. “I expect both residential investment and state and local governments to add to growth soon. And even investment in nonresidential structures should turn positive”, says Bill McBride.
However, a shrinking economy is rare outside of recessions: it has only happened 10 times since World War II, and 3 of those 10 preceded official recessions, says Ben Casselman. When it has happened, the WSJ’s Sarah Portlock notes, there have been particularly idiosyncratic explanations: post-WWII mobilization in 1947; weirdly synchronized model changes by carmakers in 1956; a massive steels strike in 1959.
While not sweating this report in particular, Jared Bernstein is worried about US economic growth in general. One weak quarter isn’t the problem, he says. Instead, the issue is that economic growth seems to have more or less stabilized around 2% (this quarter notwithstanding) without ever making any big leaps to make up for what was lost during the Great Recession. – Ben Walsh and Shane Ferro
On to today’s links:
Florida finds it costs three times as much to leave homeless people on the streets than to provide permanent housing - Orlando Sentinel
Detroit doesn’t even come close to being able to afford its own blight - Emily Badger