This story has been updated to reflect the reported GDP numbers.
NEW YORK (TheStreet) -- It's déjà vu for the U.S. economy, as another first quarter was a dud. Growth in the first quarter dropped to 0.2% at an annualized rate, down from 2.2% in the fourth quarter of 2014. But one poor quarter doesn't doom an expansion as we learned last year.
According to the CNBC Rapid Update, which averages tracking forecasts from economists, including Moody's Analytics, the consensus is for first-quarter real GDP to have risen by 1% at an annual rate. While 0.2% is a far cry from that number, the consensus estimate for the first quarter is often overly optimistic.
A number of temporary factors weighed on the economy in the first three months of the year, including weather, less energy-related investment and the West Coast port disruptions. This was a lot for the economy to digest, and it shaved nearly 1.5 percentage points off first-quarter GDP.
Here's how we gamed out the numbers earlier in the week, explaining why economists often get the first quarter wrong and why it's not time to panic...yet:
Energy will be a net negative; consumers pocketed gas-pump savings while fewer active rotary rigs will hurt nonresidential investment. The Bureau of Economic Analysis uses the American Petroleum Institute's weighted average of footage drilled, along with rotary rig counts from Baker Hughes (BHI), in its current-quarter estimate of private fixed investment in mining exploration, shafts and wells. This segment accounts for 30% of nominal private fixed investment in nonresidential structures and is expected to cut 0.5 percentage point off GDP growth.
Real spending likely rose 2% at an annual rate, a disappointment given the improvement in household purchasing power from lower energy prices. Residential investment likely rose 1.9% at an annual rate after increasing 3.8% in the final three months of the year. Weather was likely a factor in the first quarter.
We expect a noticeable deceleration in intellectual property, while inventories will be $20 billion below the fourth quarter, at a seasonally adjusted annual rate. Trade would have been a bigger drag if not for the port disruptions, and the government will also subtract from first quarter GDP, a common occurrence this cycle.
A weak first quarter is the norm this cycle and while it is easy to focus on the headline number, it's the details that matter, primarily real final sales to domestic purchasers, or GDP excluding inventories and trade. This measure won't be immune from the temporary factors that hurt the economy last quarter but it will help assess the economy's trajectory heading into the current quarter and potentially confirming or refuting some of the recent survey-based data that suggest the trajectory isn't as impressive as we would have liked.
Clouded Crystal Ball
Forecasting GDP can be a humbling experience, particularly when assumptions about weather and port disruptions needed to be made. Also, economists' estimates about first-quarter GDP have proven to be optimistic.
Over the past 10 years, the advance estimate of first-quarter GDP has had a tendency to fall short of consensus expectations. The government's first estimates have averaged 0.5 percentage point below the consensus, the largest for any quarter. The magnitude of the miss ranges from more than -1 percentage point to -0.1 percentage point while the variance of the forecast errors, which is a measure of dispersion around the mean, is low. A similar exercise was also done for the period between 2003 and 2014, excluding recession, and the results were not significantly different.
There isn't a clear-cut explanation behind initial optimism about first-quarter GDP. One possible reason is that the variation in the government's advance estimate of first-quarter GDP growth is the largest of any quarter, which may be attributed to seasonal issues.
The first quarter is typically slow for many parts of the economy, including housing and retail sales. Therefore, deviations in weather from seasonal norms can have a positive or negative effect. Quantifying the weather's precise impact on GDP is difficult, but based on this exercise, it seems that the effects of bad winter are underestimated, while abnormally warm or storm-free winters don't provide as big a boost as expected.
There is considerable uncertainty in the government's advance estimate of first-quarter GDP. The government must make assumptions with less than a complete quarter of data for a number of key inputs, including construction spending, inventories and trade. This isn't unusual but it adds more uncertainty than is normal. The government will make an assumption about the trade deficit in March and hence the impact of the port disruptions.
Our assumption is that the trade deficit widened in March. Container traffic at a number of U.S. ports jumped between February and March. Some of this is attributed to the resumption of normal port operations on the West Coast as the labor disputes were resolved in mid-February. This is only part of it, however; the appreciating U.S. dollar is also boosting imports while hurting exports.
The advance estimate of GDP will be our first, but not our last look at how the economy did in the first quarter as it will be revised numerous times.
Bottom line, don't get too depressed about the economy based on the first look at GDP.