Revised report shows first decline since 2011, but growth has since accelerated
WASHINGTON (MarketWatch) — The U.S. economy contracted in the first quarter for the first time in three years, hampered by harsh weather that disrupted business operations and slowed construction, according to newly revised government figures.
Gross domestic product, the sum of all goods and serves produced by the economy, shrank by annual pace of 1% in the first three months of 2014, the Commerce Department said Thursday. Initially the government had reported that GDP rose at an seasonally adjusted 0.1% rate.
Yet much of the economic activity that did not take place amid severe winter weather is occurring now in the warmer spring months, a string of recent reports have shown. Wall Street expects second-quarter growth to snap back with a 3.8% gain.
The decline in first-quarter growth mainly stemmed from lower investment in new housing, offices and plants. Business investment in structures was revised to show a sharp 7.5% drop instead of a small 0.2% gain. Residential investment fell by 5%.
The disruptions caused by severe weather also hurt the corporate bottom line in the first quarter. Corporate profits adjusted for depreciation and the value of inventories sank 9.8% in the first quarter, the biggest decline in almost six years. Profits had set a new record in the fourth quarter, however.
Companies also restocked warehouses at a much slower pace. The increase in inventories, which adds to GDP, was slashed to $49 billion from an originally reported $87.4 billion. Inventories had shown record increases of more than $100 billion in each of the last two quarters of 2013.
U.S. exports fell 6% while imports actually rose 0.7% instead of falling by 1.4%. Softer net exports also subtracted from first-quarter growth.
Consumer spending, the main source of U.S. economic activity, was little changed. Spending rose 3.1%, a tick higher than previously reported.
Inflation as measured by the PCE index rose at a 1.4% annual pace, or by 1.2% excluding food and energy, little changed from the preliminary estimate.
