Slow GDP Growth May Not Be Cause For Concern
MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
MICHELE NORRIS, host:
And I'm Michele Norris.
Economic growth slowed quite a bit in the early part of the year. The Commerce Department put out its quarterly estimates today, and it said the gross domestic product grew at an annual rate of just 1.8 percent. That's compared to a rate of more than three percent at the end of last year.
But as NPR's Tamara Keith reports, economists caution not to read too much into this morning's numbers.
TAMARA KEITH: That's because there are plenty of one-off, short term events that likely slowed the economy. Ian Shepherdson, chief U.S. economist at High Frequency Economics, points to nonresidential construction. It fell 21.7 percent in the first quarter.
Mr. IAN SHEPHERDSON (Chief U.S. Economist, High Frequency Economics): Which is enormous. Now, I know this sector has been very weak, but it's not that weak. To suddenly collapse by nearly 22 percent is telling you something very specific was going on. And that was the weather. It also depressed residential housing construction as well.
KEITH: So, the unusually bad winter weather beat up the construction business and may have also affected consumer spending. The Easter holiday came late this year, which may have been a factor, too. And Shepherdson says federal defense spending took a dive.
Mr. SHEPHERDSON: There's no way that that's remotely indicative of the trend, but those numbers are hugely, hugely erratic from quarter to quarter. They are all over the map.
KEITH: All this leads Shepherdson to believe the GDP number was nowhere near as mediocre as it appeared.
Mr. SHEPHERDSON: You could look at that 3.1 down to 1.8 and start getting out your ruler and extrapolating and saying OK, the next quarter is going to be less than one percent. And then we'll be back in recession by the fall.
You know, that's a really, really dangerous game to play. You've got to look at everything in context, take a deep breath and appreciate that in any given quarter, there's always an array of one-time factors.
KEITH: When economists look beyond the GDP number, they see encouraging signs: a labor market that's been improving for more than a year and a manufacturing sector that grew at a rapid clip in the first quarter.
Chad Moutray is the chief economist at the National Association of Manufacturers.
Mr. CHAD MOUTRAY (Chief Economist, National Association of Manufacturers): If we are to get a healthy economy, we need to make sure that the manufacturing sector is strong. And so the fact that manufacturing is doing well I think is something that we can point to and say: Hey, we're on the right track here.
KEITH: Which is why forecasters like Ben Herzon at MacroEconomic Advisors in St. Louis are expecting growth to pick up through this year.
Mr. BEN HERZON (MacroEconomic Advisors): We're optimistic that the first quarter was a sneeze in an otherwise healthy economy.
KEITH: The biggest thing that could derail the recovery: oil prices. If they continue rising, all these economists say they'd have to reconsider their generally positive outlooks for the rest of the year.
Tamara Keith, NPR News, Washington.
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