US economy shrank 1% in 1st quarter
May 30, 2014, 5:20 am

The US economy shrank at an annual rate of 1 per cent in the first quarter on weaker-than-expected trade and private investment amid the brutally cold weather, the Commerce Department said Thursday.

The Obama administration had initially estimated the economy grew 0.1 per cent.

This is the first contraction since the first quarter of 2011 when gross domestic product (GDP) decreased 1.3 per cent.

The first quarter contraction primarily reflected a sharp slowdown in business inventories, which subtracted 1.62 percentage points from GDP growth, compared with an initial estimate of a 0.57 percentage point fall.

Trade deficit also sliced off 0.95 percentage point, more than previous estimate of 0.83 per cent, the department said.

Personal consumption, which accounts for about 70 per cent of overall economic activity, grew at a pace of 3.1 per cent in the first quarter, revised up slightly from the initial estimate of 3 per cent.

Nonresidential fixed investment was revised to a fall of 1.6 per cent after gaining 5.7 per cent in the previous quarter, with spending on structures down 7.5 per cent and investment on equipment down 3.1 per cent.

The slowing housing market became a drag on US economic growth in the first quarter, with residential fixed investment falling 5 per cent and subtracting 0.16 percentage point from growth.

Many economists had hoped that this year could be a breakout year for US economic growth, after the economy grew at an annual rate of 2.6 percent in the fourth quarter last year.

But the first quarter contraction indicates economists may be over optimistic, although they were expecting a bigger bounce back in the second quarter.

US Federal Reserve Chair Janet Yellen said earlier this month she expected economic growth to accelerate this year despite an anemic first quarter but the cooling trend in the housing sector would be a fresh concern.

“One cautionary note, though, is that readings on housing activity — a sector that has been recovering since 2011 — have remained disappointing so far this year and will bear watching,” the central bank chief said.

“The recent fattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,” Yellen warned.

Source: Agencies