The Bureau of Economic Analysis’ advance estimate of first quarter 2014 real gross domestic product shows output produced in the U.S. grew at a glacial 0.1% rate. This is growth relative to fourth quarter 2013, when real GDP increased 2.6%. Economists were anticipating growth around 1.1%.
Steve Blitz, chief economist at ITG Investment Research,.. “Looking through the rest of the report we see the cold hand of winter,” he wrote in an note, “although I am not sure to what extent the cold in the Midwest caused the level of exports to drop by $40.5 billion while imports only dropped $8.8 billion. Surely the supply chains weren’t frozen in only one direction.”
My opinion: I’m assuming Yellen saw this low growth coming and believed it to be strongly correlated with temporary forces (ie. weather) and not structural. As Steve Blitz points out, though, it seems unlikely that the supply chains would be “frozen” in one direction.
I was pushing for a temper to the taper in March as I believed the economy would benefit from an additional push as bad outcomes can lead to even further bad outcomes. Hopefully, this does not begin to spiral.
That being said, the optimist in me thinks that Yellen weighed this slow growth against further expanding the Fed’s balance sheet and was confident in our economy. And if Yellen is confident, then I am too.