How should we understand the weakness in Q1? It may not be the most elegant answer, but we think it was mostly a confluence of several negative, but mostly one-off, factors. A swing in inventories subtracted 1.7%-points. The expiration of extended unemployment benefits probably stung consumption, as did the weather to some extent. Finally, nonresidential investment is lumpy and volatile, and happened to have a down quarter after a few up quarters in late 2013.
What’s more, there is plenty of real-time data suggesting a second-quarter snapback in the 3% to 4% range. So no “recession,” at least as commonly defined. But still … this was supposed to be the Year of Acceleration. And you really don’t see quarters this weak outside of recessions.
Two thoughts: first, slow-growth economies are especially susceptible to recessions, as Federal Reserve research has shown. It doesn’t take much of a bump to turn slow, to sputter, to stall. Second, the stumble shows an economy lacking both momentum and resilience. Hardly what one would hope to see five years into a supposed recovery. Even Feroli raised an eyebrow at the drop:
Even so, the occurrence of such a big decline in a quarter when hours worked in the business sector was up at a 2.2% rate and the unemployment rate declined does not speak well about the supply side of the economy; indeed, business productivity likely declined at a 5.9% rate last quarter, the most since 1947.