Hold the Umbrellas! A Look at GDP

May 17, 2015 3:32:40 PM

Gross domestic product (GDP) is important to understand because it has a big impact on practically everything in the economy. When the economy is healthy (represented by GDP between 4-6 percent), for example, we normally see lower unemployment rates as labor demand increases to meet the growing economy. A negative GDP growth rate can forecast a recession.

GDP grew by just 0.2 percent in the first quarter of 2015, which is below the 1 percent economists were expecting. In addition to unimpressive GDP growth in March, the trade deficit grew to $51.4 billion, which is a six-year high and could potentially erase 0.2-0.3 percentage points from the GDP. Some fear this paints a gloomy picture of the U.S. economy. Others are not worrying just yet.

aha – Is There Reason to Worry?

The short answer is no. One weak quarter doesn't signal a trend or indicate a downturn. GDP is sensitive to many factors and the first quarter of 2015 was no exception. Unforeseen labor disputes at shipping ports on the West Coast (which have since been resolved); a strong U.S. dollar; and winter weather are all to blame for the minimal GDP growth. However, GDP should be evaluated by looking at trends over time, not just the most recently reported figure. That being said, the second quarter will bring with it warmer weather and hopefully a stronger GDP gain.

Taking a look back at 2014, for example, GDP contracted at a 2.1 percent annual pace in the first quarter of 2014 and then bounced back with 4.6 percent growth in the second quarter, 5 percent in the third quarter and finished the year with 2.2 percent in the fourth quarter.

So don’t get your storm umbrellas out just yet. Many economists remain optimistic that there will be an economic rebound in the second quarter and the trend will be one of positive forward movement in 2015. In the meantime, the only storm real estate agents are gearing up for now is a superb spring selling season!

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This is the final article in the series for Q1 2015