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Be Ready for Weak GDP Data

J: On Friday, April 28 the BEA will give us the first ("Advance") estimate of real GDP for the first quarter of 2017. It will be a very low number.

L: Turns out economic data are not exactly stable. The first GDP number released by BEA after each quarter is called the "Advance" version. It comes out at the end of the first month after the quarter that's being reported on. Then, in each of the next two months, toward the end of the month, updates to those first numbers are reported, called the "Second" estimate and the "Third" estimate, respectively. And as if that isn't enough updating, at the end of July, the previous three years of data are updated, followed every 5 years or so with revisions that go back as far as they want to. It's tough being an economist.

J: Back to the forecast...The median forecast of the Bloomberg survey of 73 economic forecasters conducted from April 7-12 was 1.5 percent at a seasonally adjusted annual rate from the fourth quarter of 2016, down from 1.9 percent at a seasonally adjusted annual rate (SAAR) in March. That will probably be too high as many forecasters now expect a number well below 1.0 percent, including me.

For example, the Federal Reserve Bank of Atlanta publishes a forecast called GDPNow that is showing first quarter real GDP growing only 0.5 percent at a seasonally adjusted annual rate. Their forecast has steadily declined since February 1 when they showed a 3.4 percent growth at seasonally adjusted annual rate.

A low number would continue the pattern throughout this expansion. From 2010 through 2016, the first quarter has averaged real GDP growth of 1.0 percent at a seasonally adjusted annual rate. Both the second and third quarter have averaged 2.5 percent at a seasonally adjusted annual rate and the fourth quarter has been close to that at 2.3 percent at a seasonally adjusted rate.

Two of those first quarters were negative (-1.5 percent at an SAAR in 2011 and -1.2 percent at an SAAR). That makes this expansion and that from October 1945 to November 1948 the only two since the advent of quarterly data in 1946 to have two quarters of decline.

One problem of a weak first quarter is it holds down growth for the entire year on a year-over-year average basis. If the first quarter is indeed below 1.0 percent growth at an SAAR, we will be lucky to get even 2.5 percent real GDP growth for all of 2017. The Bloomberg consensus is only 2.2 percent.

The rest of 2017 should see much stronger growth. At least you have been forewarned about the first quarter.

L: Jim says no one knows why the first quarters have been so weak, 'cause I asked.


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