US GDP slips in Q1 but mild rebound seen
Print Edition
THE US economy shrank in the first quarter as it buckled under the weight of unusually heavy snowfalls and a resurgent dollar, but activity has rebounded modestly.
The government yesterday slashed its gross domestic product estimate to show it shrinking at a 0.7 percent annual rate instead of the 0.2 percent growth pace it estimated last month.
A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.
With growth estimates so far for the second quarter around 2 percent, the economy appears poised for its worst first-half performance since 2011.
Economists, however, caution against reading too much into the slump in output. They argue the GDP figure for the first quarter was held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations.
Economists, including those at the San Francisco Federal Reserve Bank, have cast doubts on the accuracy of GDP estimates for the first quarter, which have tended to show weakness over the last several years.
They argued the so-called seasonal adjustment is not fully stripping out seasonal patterns, leaving “residual” seasonality. The government said last week it was aware of the potential problem and was working to minimize it.
When measured from the income side, the economy grew 1.4 percent in the first quarter.
A measure of domestic demand was revised up one-tenth of a percentage point to a 0.8 percent rate and business spending on equipment was much stronger than previously estimated, taking some edge off the slump in output.
Economists had expected GDP would be revised down to show it contracting at a 0.8 percent pace.
Apart from the statistical quirk, the economy, which expanded at 2.2 percent in the fourth quarter, was hammered by labor disruptions at West Coast ports. Also dragging on growth was a sharp decline in investment spending in the energy sector as companies such as Schlumberger and Halliburton responded to the plunge in crude oil prices.
Spending on nonresidential structures, which include oil exploration and well drilling, was revised up to show it tumbling at a 20.8 percent rate instead of the previously reported 23.1 percent pace. Mining exploration, shafts and wells investment plunged at 48.6 percent, the largest since the second quarter of 2009.
Economists estimate unusually heavy snowfalls in February chopped at least 1 percentage point from growth.
Trade was hit both by the strong dollar and the ports dispute, which weighed on exports through the quarter and then unleashed a flood of imports in March after it was resolved.
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