The U.S. Economy’s Weak First Quarter

What's up with economic growth (or lack thereof) and what it means for real estate.

As expected — since a number of economic indicators have been pointing that way — the U.S. economy didn’t grow much during the first quarter of 2015, according to the Bureau of Economic Analysis on Wednesday. Real GDP increased at an annualized rate of only 0.2 percent in the first quarter, noted the advance (or first) estimate released by the BEA. During the fourth quarter of 2014, real GDP was up an annualized 2.2 percent. Most of the meager first-quarter gain was because of personal consumption expenditures (PCE—government-speak for people spending money) and private inventory investment (businesses spending money), but these were mostly offset by subtractions from lower exports, weaker nonresidential fixed investment, and lower state and local government spending. Also, imports, which are a subtraction in the calculation of GDP, increased (partly a function of the strong dollar).

The BEA noted that residential investment increased at a 1.3 percent annualized rate in in the first quarter, but investment in non-residential structures decreased at a 23.1 percent annualized rate. The bureau’s definition of nonresidential structures consists of new construction, improvements to existing structures, expenditures on new mobile structures, brokers’ commissions on sales of structures, and purchases of structures by private businesses and by nonprofit institutions—the range of commercial real estate, in other words. But it also includes mining exploration, shafts and wells. Few new wells are being dug and the number of oil and gas rigs in operation has dropped, and that dragged non-residential investment down during the quarter.

Inflation Free

The BEA also reported on U.S. inflation. The main point being: there still practically isn’t any. The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.5 percent in the first quarter, compared with a decrease of 0.1 percent in the fourth. The drop was mainly because of energy, but even without that, the rate of inflation isn’t very high. Take food and energy prices out of the equation, and the price index for gross domestic purchases was up 0.3 percent in the first quarter, compared with an increase of 0.7 percent in the fourth quarter.

Wednesday also happened to be the day the Federal Open Market Committee wrapped up its latest meeting. The minutes will be released later, but the FOMC did release a statement after the meeting was over. The statement didn’t answer the questions every Fed-watcher is asking, namely about the timing of future rate hikes. But it seems likely that the report about first-quarter GDP will be another bit of data weighing against raising interest rates anytime soon (i.e. this summer). It’s possible, however, that the Fed might still consider an upward move if the April employment report is unusually strong and inflation data is more to the central bank’s liking.