Why the US Economy Stalled in 1Q15

Jeffrey Rosenberg - Author

Dec. 4 2020, Updated 10:53 a.m. ET

So, lower bond yields in March and April have come in an environment of steadily disappointing economic data. And, in that environment, the Federal Reserve’s more dovish communication furthered expectations for a more benign interest rate environment.

However, investors should be careful not to read too much into these latest developments.

Despite seasonal adjustments, the U.S. economy has still exhibited surprisingly strong seasonality since the financial crisis. The chart plots the Citi U.S. Economic Surprise Index — an index that reacts positively when economic data surprise above economist forecasts and negatively when data surprise below.

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There’s a distinct and sharp downward trend at the beginning of almost every year since 2011, only to hit a trough in June and accelerate to a peak by the end of the year. In addition to economic surprises (relative to forecasts), realized first-quarter GDP has noticeably underperformed other quarters since the financial crisis, for various reasons.

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Reasons the US economy stalled in 1Q15

The US economy stalled in 2014 for several reasons, including seasonality, weather, strength of the dollar, the West Coast port strike, and the oil price slump.

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The first quarter has been historically been below par. The Bureau of Economic Analysis estimates the average annualized first quarter growth to be 0.6% and the rest of the year to be 2.9% (2010–2014). A rebound can be expected over the year.


The United States faced an unusually harsh winter, which was a drag on output. Even the weaker-than-expected March jobs report with a meager 126,000 job additions could include the weather as a factor. The above graph shows how far more than the historical norm were held back from their jobs due to the weather in March.

[marketrealist-chart id=400696]

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Dollar strength

Dollar strength (UUP) also adversely affected output. The dollar has been on the rise since mid-2014, as you can see in the above graph. It has risen almost 22% over the past year. The rise in the dollar crimps business spending.

Corporate earnings and revenues of S&P 500 (VOO) (SPY) companies with more than 50% of their businesses abroad are expected to suffer by almost 10% in 1Q15, as estimated by FactSet.

West Coast port strike

The West Coast Port strike also contributed to the slowdown. The strike was instrumental in narrowing the trade gap, or the difference between imports and exports, to its lowest level since 2009. Exports declined to $186.25 billion, a drop of 1.6% in February.

Oil effect

The oil price slump (USO) (BNO) of 2014 undermined business investments, especially in the mining and exploration sector. The low prices have hurt production in the energy sector, which has led to a fall in output. Schlumberger (SLB) and Halliburton have already announced cuts in spending. As reported by Reuters, Schlumberger aims to reduce capital spending for 2015 by $500 million to $2.5 billion. Halliburton (HAL) has estimated a 15% cut in spending to $2.8 billion.


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