• US Q1 economy shrinks 2.9%; worst in 5 years


    WASHINGTON, D.C.: The US economy shrank a steep 2.9 percent in the first quarter in its worst contraction in five years, the government said on Wednesday, but more recent data signals a rebound.
    The Commerce Department sharply revised downward its May estimate of a 1.0 percent contraction in the January to March period, saying there was weaker growth in consumer spending, a larger increase in exports and higher imports than previously known.

    It was the steepest drop in drop in gross domestic product, measuring the nation’s output in goods and services, since the 2009 first quarter’s 5.4-percent plunge during the worst recession since the 1930s.

    The economy was hit by unusually severe winter weather in much of the country at the beginning of the year that sapped momentum after growth of 2.6 percent in the 2013 fourth quarter.

    But it did not suggest that the US is slipping into recession, technically defined as two consecutive quarters of contraction, as second-quarter data has shown the economy rebounding.

    Jim O’Sullivan, chief US economist at High Frequency Economics, called the first-quarter report “an outlier.”

    “If anything, labor market indicators and business surveys are suggesting a net pick-up in the trend so far this year. We expect at least partial payback with a strong 4.0 percent rate of growth in Q2,” O’Sullivan said.

    The Federal Reserve has shrugged off the weak first quarter as largely weather-related. A week ago the Fed cut, for the fifth time in a row, $10 billion from its economic stimulus program, bringing it to $35 billion a month.

    The central bank said that economic growth had rebounded in recent months from the first quarter, but slashed its 2014 GDP growth forecast to 2.1 percent to 2.3 percent, down 0.7 points from its March estimate.

    Still, conditions in the first quarter were much worse than thought. Analysts pointed to huge downward revisions to consumer spending and services, the main drivers of the world’s largest economy.

    Personal consumption expenditures growth was slashed to 1.0 percent from 3.1 percent, due in part to a cutback in healthcare spending.

    Inflation remained tame. The PCE price index, the Fed’s preferred inflation measure, rose at an annual rate of 1.4 percent, well below 2.0-percent target. Services, which account for about 90 percent of output, saw growth revised to 1.5 percent from 4.3 percent.

    “This is not only a large revision but it’s a large revision in the sector of the economy that tends to create jobs,” said Robert Brusca of FAO Economics.

    “While there are cuts to spending up and down the line, the biggest cuts came in consumption and are concentrated in services. Because of that we have to wonder if the prospects for job growth to remain solid are as strong as previously thought.”



    Please follow our commenting guidelines.

    Comments are closed.