News

U.S. economy declined nearly 3% during first quarter

U.S. economy declined nearly 3% during first quarter

ECONOMIC GROWTH:Robotic arms spot welds on the chassis of a Ford Transit Van under assembly at the Ford Claycomo Assembly Plant in Claycomo, Missouri April 30. Photo: Reuters/Dave Kaup

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy contracted at a much steeper pace than previously estimated in the first quarter to record its worst performance in five years, but there are indications that growth has since rebounded strongly.

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, instead of the 1.0 percent pace it had reported last month.

While the economy’s woes have been largely blamed on an unusually cold winter, the magnitude of the revision suggests other factors at play beyond the weather.

Growth has now been lowered by a total of 3.0 percentage points since the government’s first estimate was published in April, which had the economy expanding at a 0.1 percent rate.

The difference between the second and third estimates was the largest on records going back to 1976. Revisions to GDP numbers are not unusual as the government does not have complete data when it makes its initial and preliminary estimates.

Economists had expected growth to be revised to show it contracting at a 1.7 percent rate.

U.S. stock index futures fell on the data, while prices for U.S. government debt rose. The dollar fell against a basket of currencies.

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.

ECONOMY GROWING

The economy grew at a 2.6 percent pace in the final three months of 2013. Data on 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 percent rate.

In a second report, the department said orders for long-lasting U.S. manufactured goods fell 1.0 percent last month.

Orders for these items, which range from toasters to aircraft that are meant to last three years or more, fell for the first time in three months.

They were dragged down by weak demand for transportation, machinery, computers and electronic products; electrical equipment, appliances and components; as well as a 31.4 percent plunge in defense capital goods orders.

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 U.S. economic activity, increased at a 1.0 percent rate. It was previously reported to have advanced at a 3.1 percent pace.

Exports declined at a 8.9 percent rate, instead of a 6.0 percent 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.

Other drags to first-quarter growth included a slow pace of restocking by businesses, a sharp drop in investment on non-residential structures such as gas drilling and weak government spending on defense.

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.

A measure of domestic demand that strips out exports and inventories expanded at a 0.3 percent rate, rather than a 1.6 percent rate.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Recent Headlines

1 hour ago in Entertainment

The TMNT are ‘Out of the Shadows’ in new film

Fresh
12-overlay-15

Turtle power is back as the fearsome foursome fights to save the city from a dangerous threat.

3 hours ago in Entertainment

Would you eat crickets for lunch?

eiblebugsREUTERS

A growing need for more food sources as well as a desire to treat animals more humanely have proponents predicting entomophagy, or eating insects, will eventually spread more heavily to western and developed countries.

5 hours ago in Music

Chris Brown’s ex can’t say anything ‘positive’ about him

chrisbrown808297913254

In a revealing interview Nia Guzman dishes on what it's like to co-parent with the "Kiss Kiss" hitmaker.

5 hours ago in Entertainment

Running Man dance craze sweeps police departments across U.S.

21-overlay-13

Police officers across the U.S. are dancing an updated version of the running man to a catchy 1990s hip hop song in videos that are gaining wide online popularity.

5 hours ago in Entertainment

National Spelling Bee ends in its unlikeliest tie to date

16-overlay-11

Nihar Janga looked like the strongest speller at the Scripps National Spelling Bee, and perhaps the best ever. And he's only 11 years old.