Economists and financial experts are bullish on the economy despite the stunning drop in gross domestic product reported for the first quarter of the year.
The Commerce Department on Wednesday reported that the gross domestic product (GDP) shrank by 2.9 percent in the first three months of 2014, far worse than the 2 percent contraction that had been expected.
The GDP number was the worst for the U.S. since the first quarter of 2009, when the country was mired in a deep recession.
“It was ugly reading, but I think it was a combination of a lot of one-off negative impacts that all hit at the same time,” said Scott Anderson, chief economist for Bank of the West.
“It’s eye-catching. It’s big,” said Ben Herzon, senior economist at Macroeconomic Advisers. “But we know what it’s about, and the reasons to expect a rebound in growth going forward are still there.
“That part of the story hasn’t changed.”
Financial markets also took the bleak new data in stride. All three major indices were in positive territory by Wednesday afternoon, with little sign that traders were hunkering down for rocky economic times.
The case that the awful first quarter report was an outlier is bolstered by the relative strength of other recent economic data.
The unemployment rate has fallen to 6.3 percent, and the U.S. has added over 200,000 jobs in each of the last three months. And there has been a run of good news on the housing front, which has long been deadweight on the economy.
Reports this week showed that sales of new single-family homes rose 18.6 percent to a seasonally adjusted annual rate of 504,000 units in May, the highest rate since May 2008.
Another report said sales of existing homes rose 4.9 percent in May, the largest gain on that front since August 2011. In addition, housing confidence rose 4 points in June, another good sign for the sector.
The housing market, which was hit hard by the severe winter weather, also stumbled last fall when mortgage rates rose as the Federal Reserve determined its tapering schedule.
“Potential homebuyers are adjusting to the higher mortgage rates, builders are responding by building homes at lower price points, and mortgage credit availability is slowing improving for first-time buyers,” said Mark Zandi, chief economist at Moody’s Analytics.
If the economy were to take a fundamental turn for the worse, it could be a blow to Democrats hoping to retain control of the Senate and gain seats in the House, as the party has made economic issues a central piece of their campaign message.
The underlying optimism around the economy could help explain the relatively muted political reaction to Wednesday’s disappointing numbers. A handful of Republican lawmakers blasted the Obama administration’s economic policies after the numbers came out, but Speaker John Boehner (R-Ohio) did not mention it during a press conference with reporters.
The White House, meanwhile, sought to paint Wednesday’s report as an aberration.
Jason Furman, chairman of the president’s Council of Economic Advisers, wrote that the revisions for the first quarter of the year were the most dramatic in the roughly 30 years the government has tracked gross domestic product in that fashion. He also noted that the GDP number was “significantly below” other economic measures from that time, highlighting an increase in private-sector hours and industrial output in manufacturing from the same period.
He also noted that other economic indicators declined in the first two months of the year, only to spike back up in March, giving credence to the idea that harsh winter conditions held back the economy early in the year.
The widespread belief that the first quarter number was a one-off has only raised expectations for a strong second quarter report. Zandi forecasts a strong April-June quarter rebound that could see growth near a 4 percent annual pace. If that bears out, it would represent a nearly 7-point swing, with the economy expected to maintain a similar growth path for the rest of the year.
“We’ll see good growth in the rest of 2014. This is a blip,” said Gus Faucher, senior economist at PNC. “I do think that going forward, things are looking much better.”