The Federal Reserve of Atlanta made big news last week when it announced it lowered its forecast for Q1 GDP growth to 0%. Yeah, that’s zip, zero, nada, nothing!

Most economists had downgraded their forecasts, but this announcement still was a surprise. Commentators quickly blamed bad weather as the reason. As I have mentioned before, this year’s weather was extreme, but it did not disrupt manufacturing nearly as much as last year’s Polar Vortex.

There were piles of snow in the Northeast, but that would impact the service industries more than manufacturing. However, the ISM Non-manufacturing Index was at 56.5 before the bad weather and 56.5 after (with little variation in between), so the service sector couldn’t have been hit too hard.

The other factor in Q1 is the West Coast Port Strike. The strike was settled in February, but it caused finished product and component product disruptions before then and will continue to create issues through May. The impact is difficult to measure. Some plants did shut down for a couple days due to lack of parts. However, most manufacturers found ways to work around this issue, albeit at higher costs. So again, there is an impact, but not a significant one.

Economists who believe the weather and port problems are the reason for a weak Q1 predict a “snap back” in Q2. But the data doesn’t support this yet. The ISM manufacturing index for March was 51.5%, actually down from 52.9% in February. The Wall Street Journal Economic Survey Panel (March) is forecasting 3.0% for Q2, an improvement back to previous expectations but certainly not a snap back.

Let’s assume that the Wall Street Journal Panel Q1 forecast of 2.3% took into account the weather impact. We will subtract another 80 basis points due to the port strike. That gets us to 1.5% growth. If we assume the Atlanta FED forecast is correct, what caused the 1.5% to evaporate?

What has changed recently? What significant economic occurrence? What, what, what? Oh yes, crude oil prices, and thus gasoline prices, have plummeted.

But wasn’t that supposed to be a boon to the economy as an estimated $70-$100 billion dollars poured into consumer spending as disposable income grew? Except it hasn’t happened. Consumers are not spending the extra “gas savings” cash as freely as they did in the past. Why? What is different this time?

The Great Recession changed many things, including consumers’ attitudes. One week your job was going great, you were making good money, and running a big credit card balance. The next week you were unemployed, with no hope of finding a job quickly, and no chance of paying off your debts for a long time. After the Great Recession, people are more conservative with purchasing decisions and, this time, are not spending the gas savings windfall.

Of course when crude prices fell, economists warned that the economy would also take a hit due to reduced oil and gas exploration infrastructure and drilling. This part of the equation has come true, although actual production remains fairly steady.

Conventional wisdom would say that the energy industry is a small segment of the total economy and a slowdown in activity should have a limited impact. But what if the conventional wisdom is wrong? At times during this long recovery we have heard “the energy sector is the only area of high growth.” We have seen better job growth numbers, followed with the caveat of “most of these jobs are low-wage positions in the service sector, except for all the higher paying jobs in energy.” Perhaps it was the energy sector and the ancillary spending, jobs, and positive news that was driving the modest economic growth for the past few years. And now, there was an unexpected shock to this growth machine that is letting the air out of the growth balloon.

Remember that economists were confused by having a recovery which wasn’t led by housing; so what then was leading it, beyond energy? Also, we do know what happened when the economy, being led by a housing surge, albeit artificially generated, crashed due to an unexpected shock to that industry.

I’m going to predict that the energy slowdown is having a much bigger impact than anticipated. It is probably not responsible for the entire 1.5% drop mentioned previously; the stronger U.S. dollar is hurting exports, so this causes part of the drag.

How viable is the Atlanta FED 0% Q1 GDP forecast? The lowest forecast in the March WSJ poll was 1%. However, that forecast is from Brian Wesbury and Robert Stein from First Trust Advisors, L.P. And these guys are good. They write the First Trust Economics Blog – The Antidote to Conventional Wisdom, so naturally they are two of my favorite economists. And it looks like they were way ahead of the game on this one.

It would appear the engine of economic growth has literally run out of gas. Regardless of what caused the slowdown, the momentum has been lost. Unfortunately, it appears it will be much harder to regain traction this time.