Final Estimate of Q1 GDP Growth: Not Hot and Not Cold, But Not “Just Right” Either

The U.S. economy shrank by a seasonally adjusted annual rate of 0.2% over the first quarter of 2015.

This third and final estimate of first quarter GDP growth is lower than the initial estimate but is higher than the second estimate. However, despite first quarter weakness, mortgage lenders believe that the U.S. economy is on the “right track”. In contrast, the sense of the general population is that the U.S. economy is on the “wrong track”.

For the third and final estimate the U.S. economy shrank by a seasonally adjusted annual rate of 0.2%. The decline in the final estimate of economic output reflected a 0.6% decline in government consumption expenditures a 5.9% decrease in exports, and a 7.1% increase in imports. Imports are a subtraction in the calculation of GDP. The negative effect of these variables were partially offset by a 2.1% increase in personal consumption expenditures, and a 2.4% increase for private domestic investment.

Residential fixed investment, a component of gross private domestic investment, rose by a seasonally adjusted annual rate of 6.5%. Housing’s share of GDP rose to 15.45% of GDP at the start of the year.

Compared to previous estimates, the final estimate was lower than originally expected, but better than the “second” estimate. The “advance” or first estimate of first quarter GDP growth was 0.2%, but the second estimate of first quarter GDP growth was -0.7%. The deterioration from the first estimate of growth in first quarter GDP to the final estimate reflects stronger quarter-over-quarter growth in imports.

Nonetheless, the growth rate of each major category of the U.S. economy improved between the first estimate to the “third” estimate.

Presentation1

Although the U.S. economy shrank over the first quarter of 2015, the majority of mortgage lenders believe that the economy is on the “right track” according to data from Fannie Mae. As shown in Figure 2, 61% of mortgage lenders believe that that U.S. economy is on the “right track” compared to 29% who believe that the U.S. economy is on the “wrong track”. This sanguine view of the economy is held by mortgage lenders of all sizes, larger institutions, mid-sized institutions, and smaller institutions.

According to Fannie Mae, larger institutions are Fannie Mae customers whose 2013 total industry loan origination volume was greater than $965 million, putting those institutions in the top 15% of loan originators. Mid-sized institutions were Fannie Mae customers whose 2013 total industry loan origination volume was between $269 million and $965 million, lying in the 16th to 35th percentiles. Smaller institutions had 2013 total industry loan origination volume that was less than $269 million.

More than half of all lenders, believe that the U.S. economy is on the “right track”. However, a greater proportion of mid-sized lenders reported this kind of optimism. Furthermore, while still holding optimistic views, a greater percentage of larger institutions than smaller institutions believe that the U.S. economy is on the “wrong track”.  Smaller lenders were more likely to be unsure of current economic conditions.

Presentation2

While most mortgage lenders believe that the U.S. economy is on the “right track”, the majority of the general population, believes that the U.S. economy is on the “wrong track”. According to Fannie Mae’s National Housing Survey, and shown in Figure 3 below, 38% of consumers believed that the U.S. economy is on the “right track”, but 52% of consumers believe that the U.S. economy is on the “wrong track”.  Improving labor market conditions and income growth should help improve consumer moods.

Presentation3



Tags: , , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *