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US economy contracts for the first time since 2011

Published time: May 29, 2014 15:46
AFP Photo / Paul J. Richards

AFP Photo / Paul J. Richards

The US Department of Commerce said Thursday that the economy contracted between January and March of this year at a rate of 1 percent, defying initial estimates from economists who expected to see a slight uptake during the first quarter of 2014.

Instead, the economy diminished for the first time since that same period three years earlier. On the heels of a particularly harsh winter, however, economists say the downturn is already in the past and that numbers are on the up already.

“The US recovery took a backward step in the first quarter, most likely the result of many parts of the country having been battered by extreme weather at the start of the year," Chris Williamson, a chief economist at financial information firm Markit, told the Los Angeles Times. "However, current indicators suggest this was merely a temporary setback in an otherwise ongoing robust recovery, pointing to a strong rebound in the second quarter," he said.

Ryan Sweet, a senior economist for Moody’s Analytics, told Bloomberg that the downturn could be attributed to “less construction spending and less inventory accumulation” — two factors typical of the cold winter months. According to the LA Times, private businesses increased their inventories during the first quarter of 2014 by $49 billion — less than half of the $111.7 billion surge during the previous quarter, which includes the holiday shopping season.

Combined with weather conditions, the post-holiday lull helped the nation’s economic output shrink at an annual rate of 1 percent. Nevertheless, economists say that trend is over and done with.

"We knew that weather dramatically impacted growth in the first quarter, and we fully expect a bounce back in the second quarter,” Dan Greenhaus, chief strategist at BTIG, told clients in a memo obtained by the Associated Press.

But while economists had initially predicted better performance in the first quarter, the US Fedreal Reserve acknowledge late last month that harsh weather during the start of 2014 played a huge role in ravaging their expectations.

According to Bloomberg, some financial insiders say that the economy is already on the up.

“Performance has already improved in May, and continued improvement in the macroeconomic landscape and the consumer sentiment” help give the chain a positive outlook in 2014, Robert Niblock, the chief executive officer at home-improvement retailer Lowe’s Cos., said on a May 21 earnings call, Bloomberg acknowledged.

Statistics pertaining to the most recent weeks suggest that the economy is indeed back on the right track: the four-week average for jobless claims is currently at the lowest level since 2007, and economists surveyed by Bloomberg say they now expect the economy to expand at a rate of 3.5 percent this quarter.

"The second estimate of GDP is backward looking," said In the fourth quarter, the overall economy had grown at an annual rate of 2.6 per cent.

Jobless claims dropped by 27,000 to 300,000. The four-week average decreased to the lowest level since August 2007.

The economy in the second quarter will expand at a 3.5 percent rate, according to the median projection of 72 economists surveyed by Bloomberg from May 2 to May 7. For all of 2013, the economy expanded 1.9 percent after a 2.8 percent gain in the prior year.

Comments (20)


ifonlyyouknew 13.08.2014 18:39

The U.S. has almost expired and are in the death throes.


Wayne Koppa 30.05.2014 19:44

US economy is 40% government spending (federal, state, local) which goes up every year. Search "U.S. sees $107 billion April budget surplus". The government accountants can shift the spending numbers and make them add up anyway they want.


LisaAgnes 30.05.2014 19:34

LisaAgnes 30.05.2014 03:32

Al so, I believe that many Americans are doing less spending on unnecessary stuff. I don't have the numbers or study to back up what I say, but I believe that it is probably true that our economy is way too dependent on that stuff and isn't centered around the things we all know people will always have to buy.


It occurred to me this morning that this is why supplying energy resources is so important to Putin - this will always be in demand for an industrial, modern society. If this is a pillar of his country's economy, it makes that economy more stable.

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