Honey..... I shrunk the economy !!!

The latest revised estimate about GDP growth was released this week and it paints a picture of the economy shrinking by about 0.7 percent in the last quarter. How is that even possible? We had a spectacular growth of about 4.7 percent in 4Q14. There are a few obvious factors that led to this decline. First, the weather. Mother nature played havoc in 1Q15 and just ask the people of northeast if they want to see snow again! The torrent of snowstorms and in general winter weather played havoc in most parts of central and eastern United States. This resulted in fewer people venturing out and a mass disruption of general transportation, forcing customers at home and fewer people at malls and stores.

The second factor is the shopping season is traditionally the 4th quarter of every year. A few blockbuster holidays of Thanksgiving and Christmas leads to more consumption and in general translating into more sales.

The third factor is reduction in net exports. The widening export deficit is resulting in a net reduction of GDP as well.

It is expected the economy will bounce back in 2nd quarter and definitely in 3rd quarter. This can be attributed to the good weather and people in general willing to travel more. It is estimated that if the economy bounces back as predicted, the FED will go for a soft raise of interest rates in October.

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