Adjusting the Fed’s View of Growth
Central bank can look past negative first-quarter GDP report
By Justin Lahart
Updated May 29, 2015 11:17 a.m. ET
Severe winter weather in places like Boston weighed on the first-quarter GDP results. Photo: Elise Amendola/Associated Press If there ever was a contraction in the economy the Federal Reserve could look beyond, the drop in first-quarter gross domestic product was it.
The Commerce Department on Friday released revised figures showing that GDP fell an annualized 0.7% in the first quarter from the fourth, adjusting for seasonal swings. But those seasonal adjustments are posing a bit of a problem, with a number of researchers, including economists at the San Francisco and Philadelphia Federal Reserve Banks finding that GDP has tended to be understated in the first quarter. The Commerce Department says that with the release of second-quarter GDP on July 30 it will introduce steps to mitigate the problem. So the first-quarter figures will get revised higher.
How much, exactly, isn’t clear. But economists who have applied the San Francisco Fed’s methodology to Friday’s figures reckon GDP grew at a bit more than a 1% rate in the first quarter. And given that West Coast port disruptions and severe winter weather also weighed, the underlying trend of the economy was probably a bit better.
Not enough better to qualify as anything other than lackluster, but good enough that the Fed can still feel comfortable about raising rates at its September meeting. If GDP is weak in the second quarter, or if the job market starts to falter, that will require a different sort of adjustment.
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