TopNews

Economic Watch: GDP Stalls in First Quarter

April 28, 2016

SHARING TOOLS        | Print Subscribe

Feelings that the American economy slowed to a crawl in the first quarter of the year were confirmed on Thursday morning when the Commerce Department released its report showing the gross domestic product increased at an annual rate of just 0.5%.

This first estimate of this widest measure of economic activity is the worst performance in two years and fell short of a 0.7% first quarter annual rate expected by Wall Street.

It follows a rate of 1.4% in the fourth quarter of 2015. For all of last year, the GDP expanded at a 2.4% pace.

Two more first quarter GDP estimates, based on more complete data, are set for release over two months with the next coming on May 27.

According to this first-estimate report, the GDP in the first quarter showed positive contributions in the form of personal spending, which increased at a 1.9% rate, along with residential fixed investment and state and local government spending.

It was partly offset by a 5.9% decline in nonresidential fixed investment, a gauge of business spending and the biggest drop since the Great Recession. Other declines affecting the disappointing GDP numbers were private inventory investment, exports, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

American Trucking Associations Chief Economist Bob Costello pointed out in a tweet that a reduction in inventories took 0.33 percentage points off of first-quarter GDP. "Still more to go before inventories are corrected though," he said. Overly high inventories has been a thorn in trucking's side, as there is less freight to haul to replace those inventories.

The first quarter results were not surprising following reports of slower manufacturing activity and weak retail sales in January through March, the high value of the dollar relative to foreign currencies, and less freight for trucking companies to move.

This latest performance also follows slow starts the previous two years. The first quarter GDP in 2014 contracted and in 2015 it barely posted any growth. However, conditions bounced back later in both years. In fact, from 2010 through 2015, first-quarter GDP growth averaged just 0.8% compared with 3.1% for the second quarter, 2.2% in the third quarter and 2.4% for the fourth quarter, according to the Wall Street Journal.

“We expect that the slowing in overall GDP growth in the last two quarters will ultimately prove transitory."

“We expect that the slowing in overall GDP growth in the last two quarters will ultimately prove transitory, with our forecast assuming a return to above-trend growth beginning in the current quarter,” said Nathan Janzen, Senior Economist at RBC Economics.

“With inflation and the unemployment rate both already tracking close to the Federal Reserve’s objectives, we expect that improved growth will ultimately prompt further increases in interest rates, although our current outlook does not assume the next hike in the fed funds target range until the fourth quarter of this year.”

 

Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.

GotQuestions?
sponsored by
sponsor logo

ELDs and Telematics

Scott Sutarik from Geotab will answer your questions and challenges

View All
GotQuestions?

Sleeper Cab Power

Steve Carlson from Xantrex will answer your questions and challenges

View All