First-Quarter Revision Puts GDP In The Red

May 29, 2015

It turns out that the harsh winter and a growing trade deficit made a bigger dent in the U.S. economy in the first three months of the year than previously thought — with revised first-quarter GDP actually shrinking by 0.7 percent, according to the Commerce Department.

Commerce had earlier estimated output growing by 0.2 percent. The contraction announced Friday is the first since the first quarter of 2014.

As The Wall Street Journal notes: “The revision, near economists’ expectation of a 1 percent contraction, showed how the world’s largest economy remains vulnerable to shocks as it struggles to regain its vigor. The dip, expected to be short-lived, marked the third quarterly contraction since the economy emerged from recession in mid-2009.”

In addition to the hard winter, the trade gap, the difference between exports and imports, was also wider than first reported. Trade has been hard-hit by the strong dollar, which has made U.S. exports expensive compared to those from other countries.

Even so, as The Associated Press reports: “steady job gains are expected to fuel modestly healthy growth for the rest of 2015. The harsh winter, which kept many consumers home and businesses closed, and a labor dispute that slowed trade at West Coast ports are both over. Home sales and construction are rebounding, along with business investment.”

And, a week ago, Federal Reserve Chair Janet Yellen said that the bank was on track for its first interest rate hike since 2006 later this year in response to the overall improving economy.

In a statement released by the Council of Economic Advisers, Chairman Jason Furman said despite the downward revision, “The combination of personal consumption and fixed investment, the most stable components of GDP, has grown 3.4 percent over the past four quarters. This solid long-term economic trend complements the robust pace of job growth and unemployment reduction over the last year.”

According to the AP: “One of the biggest hits to the economy last quarter came from cuts in drilling activity by energy companies — fallout from the sharp drop in oil prices over the past year. The government said investment in the category that covers energy exploration plunged at an annual rate of 48.6 percent, the steepest drop since 2009, during the Great Recession.”

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