×

First-quarter growth was likely below 1%, according to latest CNBC/Moody's survey

  • First quarter growth is tracking at an average 0.9 percent, according to CNBC/Moody's Analytics latest Rapid Update.
  • Recent drop in forecast due to warm weather, which hurt electricity demand.
  • Economists still see a big rebound in growth for the second quarter.

The first quarter economy is expected to have grown at a sluggish pace below 1 percent, in part due to balmy winter weather, and a data quirk that shows up each year in the first quarter.

According to CNBC/Moody's Analytics Rapid Update, first quarter growth is tracking at an average 0.9 percent, following Friday's weak retail sales number.

But some economists, like those at Macroeconomic Advisers, expect growth to rebound in the second quarter. Macroeconomic Advisers see first quarter growth at 0.6 percent, with second quarter at 3.6 percent, but then a drop off back to a growth pace closer to 2 percent in the second half.

The unusually warm weather in January and February took a bite out of growth in the first quarter and could help make up for it in the second quarter. "Real spending on electricity and gas utilities declined by 30 percent at an annual rate. When you factor in the share of electric and gas utilities in GDP, that's a [decline] of 0.3 in GDP," said Herzon. He said if March rebounds as expected, there could be an increase of 0.4 percent in second quarter, which would account for a 0.7 percent swing in GDP.

The official GDP number comes out April 28.

Herzon said there was also a residual seasonality factor that affected the GDP data and has off and on for the past 20 years. He said the government is attempting to straighten out the unusual hit to first quarter growth.

"What BEA (Bureau of Economic Analysis) does is they combine a whole lot of source data when they come up with GDP," he said, noting the BEA will take data from the Census Bureau. "They don't do their own seasonal adjustments."

"First quarters are artificially weakened by this statistical anomaly, and by the same token second, third or fourth quarters are boosted," he said. That could amount to about a three-quarters of a point hit to first quarter GDP.

Even with a forecast for growth above 3 percent in the second quarter, Herzon said GDP in 2017 should grow at about 2.3 percent.

"With the growth we've been getting, the unemployment rate has been coming down. It's enough growth to take out slack in the labor markets," said Herzon.

Diane Swonk, CEO of DS Economics, expects to see growth at 0.7 percent in the first quarter , and 3.3 percent in the second quarter.

"Unlike last year, we don't have an overhang of inventories. We still had great jobs, we created a half million jobs in the first quarter," Swonk said. But she too said the data is skewed. "This is quirky, but it's not endemic...It is just another soft start but a bit of a head fake, but the good news is there's a lot more reason to be optimistic this year than there was a year ago," she said. Swonk also said the economy this year should grow at about a 2 percent pace.

Watch: Time to buy?