US economy contracted by 2.9% in first quarterWednesday 25 June 2014 15.32
The US economy contracted at a much steeper pace than previously estimated in the first quarter, but there are indications that growth has since rebounded strongly.
The Commerce Department said today that gross domestic product fell at a 2.9% annual rate, the economy's worst performance in five years, instead of the 1% pace it had reported last month.
While the US economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather.
Growth has now been revised down by a total of three percentage points since the government's first estimate was published in April, which had the economy expanding at a 0.1% rate.
The difference between the second and third estimates was the largest on records going back to 1976, the Commerce Department noted.
Economists had expected growth to be revised to show it contracting at a 1.7% rate.
Sharp revisions to US GDP numbers are not unusual as the government does not have complete data when it makes its initial and preliminary estimates.
The latest revisions reflect a weaker pace of healthcare spending than previously assumed, which caused a downgrading of the consumer spending estimate. Trade was also a bigger drag on the economy than previously thought.
The US economy grew at a 2.6% pace in the final three months of 2013. But with the first quarter now firmly in the past and the three months from April to June looking stronger, investors are likely to ignore the report.
US data such as employment, manufacturing and services sectors point to a sharp acceleration in growth early in the second quarter. However, the pace of expansion could fall short of expectations, which range as high as a 3.6% rate.
Economists estimate severe weather could have slashed as much as 1.5 percentage points from GDP growth in the first quarter. The government, however, gave no details on the impact of the weather.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 1% rate. It was previously reported to have advanced at a 3.1% pace.
Exports declined at a 8.9% rate, instead of 6% pace, resulting in a trade deficit that sliced off 1.53 percentage points from GDP growth. Weak export growth has been tied to frigid temperatures during the winter.
Businesses accumulated $45.9 billion worth of inventories, a bit less than the $49.0 billion estimated last month. Inventories subtracted 1.70 percentage points from first-quarter growth, but should be a boost to second-quarter growth.
Today's figures also show that a measure of domestic demand that strips out exports and inventories expanded at a 0.3% rate, rather than a 1.6% rate.
The White House said the steep contraction in the US economy in the first quarter shows that recovery from the recession is still in progress.
But it noted that other indicators for April and May suggest a rebound in the second quarter.
"The recovery from the great recession, however, remains incomplete, and the president will continue to do everything he can to support the recovery, either by acting through executive action or by working with Congress on steps that would boost growth and speed job creation," said Jason Furman, chairman of the Council of Economic Advisers.