We hear over and over again how the weather has taken a bite out of the economy in the first quarter. And how the economy will eventually bounce back.
Currently, Wall Street expects that in the first quarter of this year, the economy grew by just 1%, well below the roughly 2.2% trend the economy has expanded at over the last four years. One measure from the Atlanta Fed was even forecasting 0% GDP growth at one point.
But in a note to clients, Deutsche Bank’s Joe LaVorgna writes that part of this problem might be how the government is adjusting for this weather.
LaVorgna notes that over the last 5 years, real GDP growth has averaged just 0.6% in the first quarter. When you back out last year’s horrible -2.1% decline, GDP is still averaging just 1.3% during these periods.
In contrast the economy has grown at an average pace of 2.9% during the last 3 quarters of the year over the last 5.
As for why this continues to be the case, LaVorgna writes:
While inclement weather has been the main source of weakness in the first quarter over the last couple of years, our best guess as to why Q1 weakness persists is faulty seasonal adjustments by the Bureau of Economic Analysis. In this respect, the year-over-year growth rates, at least in Q1, are the better gauge of the underlying trend in the economy.
As for the rest of this year? LaVorgna expects the economy will follow the same pattern it has in recent years and sees GDP growth running north of 3% over the remaining quarters of this year.
Here’s LaVorgna’s chart showing the discrepancies in growth during the first quarter against the rest of the year.