What to make of slow 1st quarter U.S. economic growth?

The U.S. Bureau of Economic Analysis today released its second estimate of gross domestic product growth in the first quarter of this year. Predictions of negative economic growth came true as GDP declined at a 0.7 percent annual rate during the first three months of 2015. What should we make of this report? With the caveat that discerning a pattern off of one report using one data series for one quarter can be risky, here are several options for what this report might signal about the current pace of U.S. economic growth.

The first is simply that there’s a flaw in the data. The data released to the general public is adjusted in several ways, including an adjustment to account for fluctuations that happen over the course of the year. Just one case in point: Sales go up during December every year due to holiday shopping so there’s a seasonal adjustment to account for ths regular patterns so we don’t think there’s an uptick in GDP growth every December. But given the pattern of weak growth in the first quarter over the last several years, many economists and analysts have become concerned there are flaws in the BEA’s seasonal adjustments. In a post at Bruegel, Jeremie Cohen-Setton of the University of California-Berkeley rounds up the various articles on this potential problem with the GDP data.

But what if the seasonal adjustment isn’t the issue? GDP growth was extremely weak during the first quarter, but with the exception of March employment growth doesn’t seem to have significantly shifted downward. So a second option is this—we probably aren’t experiencing a decline in overall economic activity. In other words, a recession doesn’t seem imminent.

Yet continued employment growth in the face of weak output growth would be a sign of a third option—low productivity growth. Grep Ip at The Wall Street Journal makes this case, paralleling the situation in the United States with conditions in Japan and Germany. Weak output growth in the first quarter, in this case, isn’t a sign of an imminent downturn but rather weaker potential long-run growth.

The fourth option: economic growth remains weak because a full recovery since the end of Great Recession in mid-2009 is still elusive. The overall unemployment may be hovering around the rate that some economists consider its natural rate of around 5 percent, yet the share of prime-age workers ages 25 to 54 with a job—at 77.2 percent—is still below its 2007 pre-recession high. GDP growth has been positive for a while, but by several estimates of GDP the decline reported today may be a sign of a recovery that’s not as strong as we’d like.

Of course, it’s possible that some mixture of all of these options is closer to the truth. That’s why we shouldn’t over-react to a decline in GDP. Instead, we should spend some time trying to consider why it happened at all.