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The US economy contracts for the first time in three years

by , 29 May 2014

Earlier today, the US's Commerce Department released its gross domestic product figures (GDP) for the first quarter of the year. The data showed that for the first time in three years, the economy shrank. Let's take a closer look at what led to a contraction in the economy…

US GDP for the first quarter was -1%

Today, US GDP data came out worse than forecast, says Fin24. The figures showed that the “output of goods and services decreased at an annual rate of 1%” from January to March.

This is the first time that GDP’s dropped since the first quarter of 2011, reports IOL. A severe winter is taking the blame for the economic contraction.

Data showed the drop is down to a “far slower pace of inventory accumulation,” says BDLive. And the trade deficit came out bigger than forecast.

GDP for the first quarter is in stark contrast to the “2.6% rise in economic output in the final quarter of last year,” notes the BBC. Economists say the weather probably shaved “up to 1.5%” off GDP.

On release of the report, the dollar weakened, adds BDLive.

Economists expects GDP to rise for this quarter

Economists expect the fall in economic output to be a blip, says BDLive. The factors that pulled down growth “are temporary”.

Looking closer at the data, consumer spending, which drives over two-thirds of GDP in the US, grew by 3.1%, reports the BBC. But exports fell and imports rose, putting pressure on the trade deficit.

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In another report released today, the US Labour Department said that “state unemployment benefits declined 27,000,” notes IOL. That brings it in at 300,000 for last week. This is the “lowest level since August 2007”.

So this slight contraction in the economy looks specific to the first quarter of the year. And going forward data should be positive.

The US economy contracts for the first time in three years
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