U.S. GDP Dropped 2.9% In The First Quarter 2014, Down Sharply From Second Estimate

Courtesy of Forbes: The latest data shows the U.S. economy contracted significantly more than previously estimated in the first quarter of this year.

On Wednesday, the Bureau of Economic Analysis released its third and final estimate of real gross domestic product for the first three months of 2014. The release showed output in the U.S. declining at an annual rate of 2.9%. This is relative to fourth quarter 2013, when real GDP grew 2.6%.

The final number is also down from BEA’s negative 1% second estimate released last month, and even more sharply from its first estimate that showed GDP growing 0.1%. While this makes Q1 was the economy’s worst quarter in since the recession, economists were anticipating the further downward revision.

“The bad weather in much of the U.S. in early 2014 was a significant drag on the economy, disrupting production, construction, and shipments, and deterring home and auto sales,” wrote PNC Senior Economist Gus Faucher in a note out prior to the release. “But data show growth rebounding in the second quarter, with improvements in home and auto sales and residential construction.”

The major stock indices remained mixed mixed immediately after the release seeming to indicate investors were also writing off the contraction as temporary. However, stocks slipped further into the red as the opening bell approached. The S&P 500, the Down Jones Industrial Average and the the Nasdaq Composite were all down around 0.2%.

The revision, BEA explained in a release, was largely due to a smaller than previously estimated increase in personal consumption and larger that previously estimated decline in exports. The 2.9% decrease in real GDP reflected the negative contribution from exports as well as declines in private inventory investment both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half) and in personal consumption.

The price index for gross domestic purchases — which measures prices paid by U.S. residents — increased 1.3% in line with the prior estimate and compared to 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 1%, down sharply from the 3.1% second estimate and from the increase of 3.3% in the fourth quarter.
BEA — a division of the Department of Commerce – will release its advance estimate of Q2 GDP estimate on July 30.

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