Estimates of how an economy has fared over a given quarter are made on partial data shortly after the quarter in question ends. The quarterly GDP figure gives a snapshot of how the economy is doing, so it is a useful and eagerly anticipated figure. As the following quarter proceeds, more comprehensive data becomes available as to what actually happened in the preceding quarter, refining the estimate. As a consequence, quarterly GDP is usually subject to two revisions giving an “advanced” a “preliminary” and a “final” estimate. The practice of making these estimates is fairly mature and often all three readings will agree, however, this is not always the case.
The advanced estimate for growth in the US economy in Q1 2015 was that the economy grew by 0.2%, on an annualised basis over the preceding quarter. However, this has been revised downwards to show that the economy endured a contraction of 0.7% over Q4 2014, on an annualised basis. The quarter is the first in a year to show a contraction – it shrank by 2.1% in Q1 2014 following a severe winter.
The weaker economic performance has been blamed on a relatively harsh winter which deterred consumers for venturing out to make non-essential purchases. Consumer spending grew more slowly than initially thought: 1.8% instead of 1.9%. Imports were higher than identified in the advanced estimate and inventories held by businesses accumulated less than anticipated.
The strong Dollar has been blamed for dampening exports (which are dearer in importing markets) and boosting imports (the opposite side of the coin).
The economic data is being scrutinised for portents as to when the Federal Reserve will start to increase interest rates, Janet Yellen, Chairman of the Fed, suggested that rates could rise this year, but the comment was made before the publication of the revised data. "From a policy perspective, the first quarter lull is already history; it's the extent of the rebound that will be critical in determining the timing of the Fed's first move on interest rates. Survey evidence is already pointing to a second quarter pick-up”, noted Chris Williamson, chief economist at Markit.