And so the polar bears penguins come out of hibernation, "explaining" today's disastrous GDP print. Randomly selected for your reading pleasure, here is Bank of Frigid America's Ethan Harris spiking the Kool Aid with an above Surgeon General recommended dose of hopium.
An unforgettable winter
We caution against reading too much into the weakness, as it is clear that special factors during the quarter distorted growth. The severe winter weather weighed heavily on consumption, fixed investment and trade. Furthermore, there was a notable inventory drawdown that amounted to a 1.7pp drag on growth, following two strong quarters of inventory build in 3Q and 4Q of 2013. Despite the deeper contraction in this final release, we are not revising 2Q GDP growth. We continue to expect a 4.0% rebound in the second quarter, and the recent data suggest that we are headed in that direction. However, uncertainty around this number remains elevated: there could continue to be special factors at play stemming from the weakness in 1Q. Moreover, benchmark GDP revisions, released with the first estimate of 2Q GDP in July, could alter the trajectory.
Assuming 4.0% growth in 2Q and solid 3.0% growth in 2H, growth will still only average 1.7% this year. It certainly was not the start of the year we were hoping for.
Putting today's GDP print in context, here is J. Lyons Fund Management which shows that the final Q1 GDP print was the 17th worst in US history.
Or, said another way, it was their fault.