Photographer: Tim Rue/Bloomberg

What to Expect From the U.S. GDP Report

Temporary and longer-lasting adversities signal second-quarter rebound may be shaky too

Minutes before Federal Reserve policy makers start a second day of meetings on Wednesday to discuss the outlook for interest rates, they'll get another round of less-than-stellar news on the economy. Gross domestic product expanded in the first quarter at half the pace of the previous three months, economists reckon. And the fourth quarter was half as strong as the third. All told, the trajectory isn't great. 

The Commerce Department's report, slated for 8:30 a.m. in Washington, will be the first look at how the world's largest economy fared at the start of 2015.

The Good: At least there's a plus sign in front

GDP, the volume of all goods and services produced, increased at a 1 percent annualized rate after advancing 2.2 percent in the last three months of 2014, according to the median forecast in a Bloomberg survey. While no economist has penciled in a contraction, some predict it'll come tantalizingly close: The lowest estimate is little changed. GDP shrank at a 2.1 percent pace a year earlier when particularly frigid winter weather took a toll.

Consumer spending, the biggest part of the economy, probably grew at a 1.7 percent rate. It also would be the weakest in a year and a far cry from the prior quarter's 4.4 percent gain that was the best in almost nine years, as gasoline prices began their descent.

The report may show households have plenty of spending power, if they choose to use it. With incomes rising — thanks to a strengthening job market — and fuel costs low, the saving rate probably jumped to 5.8 percent in the first quarter from 4.6 percent in the fourth, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

The Bad: Weather, port delays pose temporary headwinds

Besides crimping consumer spending, harsh temperatures and snowstorms in February and early March put a dent in homebuilding and damped commercial construction. Housing starts averaged 969,000, the lowest quarterly pace in a year.

The work stoppage at West Coast ports prevented manufacturers from receiving raw materials in time, slowing production. Factory output slumped last quarter by the most since the second quarter of 2009, just as the recession was ending.

The Ugly: Rising greenback and slumping oil do a number on exports and business investment

The appreciating dollar — which makes American-made goods more expensive to foreign customers — dinged exports. A widening trade gap probably reduced first-quarter GDP by about 1 percentage point, "with the risk that the drag is even bigger" after a similar cut in the prior three months, according to Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. The last time net exports subtracted at least a percentage point from GDP in consecutive quarters was 1999.

The plunge in oil prices caused the oil and gas drilling component of structures investment to plummet 45 percent last quarter, according to Morgan Stanley estimates.

After worse-than-forecast retail sales and durable goods orders for March, economists are less gung-ho about projections for a strong rebound this quarter. JPMorgan's Feroli lowered his GDP forecast to 2.5 percent from 3 percent. The headwinds “remain stiff,” he wrote. 

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