A number of factors played into Wednesday’s weak gross domestic product report for the first quarter, which showed that the U.S. economy grew only 0.2 percent from January through March:
1. Cold weather
It was the third coldest winter in 20 years, by some measures, and the Northeast was hit particularly hard with massive snowstorms that snarled traffic and slowed down business. The White House noted that it was only the fourth winter on record with three or more snowstorms sufficiently severe to register on an index kept by the National Oceanic and Atmospheric Administration.
The unusually harsh winter likely slowed down consumer spending and investment, especially in home building.
2. The rising dollar
As the U.S. economy has slowly recovered from the recession and the Federal Reserve has moved toward tightening monetary policy, the rest of the world has been going in the other direction.
As a result, the dollar has strengthened rapidly. The euro, worth nearly $1.40 last summer, is now worth under a dollar.
A rising dollar makes U.S. products more expensive for foreigners to buy. Exports declined by 7.2 percent in the first quarter.
3. Cheaper oil
Drillers and oil companies have seen the steep drop in the price of oil cut into the historic U.S. shale oil revolution. The price of a barrel of Brent crude oil has fallen from roughly $110 last summer to around $65 more recently, making some drilling operations unprofitable.
Investment in mining fell 50 percent in the first quarter, explaining the majority of an overall drop of nearly a quarter in investment in non-housing structures.
Oil-producing cities and regions have been losing jobs in recent months, and oil-heavy states like Texas have seen job growth crimped by the falling price of oil. In recent weeks, however, oil prices have firmed up, meaning that the impact should be alleviated. Furthermore, government and private-sector economists expect that low prices at the gas pump will eventually translate into higher spending and better balance sheets for consumers.
4. Seasonal adjustments
The gross domestic product figures tallied by the Bureau of Economic Analysis are adjusted for seasonal fluctuations.
Recently, however, some economists have questioned whether those adjustments are accurately capturing seasonal variations or instead making the first quarter appear worse than it really is. Over the past five years, Deutsche Bank economists noted in an analysis published before Wednesday’s report, real GDP growth has averaged just 0.6 percent in the first quarter, well below the full-year average of 2.3 percent.
Notably, last year’s first-quarter report was revised down from an initial 0.1 percent real annual rate to negative 2.9 percent in the third estimate. “[O]ur best guess as to why Q1 weakness persists is faulty seasonal adjustments by the Bureau of Economic Analysis,” the Deutsche Bank analysis concluded.
Part of the confusion is that winter weather has been unusually bad recently: 2014’s winter was even harsher than this year’s in many respects.
If the seasonal adjustments used by the government are failing to capture what’s really happening in the first quarter, the economy would be expected to snap back in the rest of 2015, just as it has in recent years.
