US economic output contracts in first quarter

World’s largest economy slumps as harsh winter weather and strong currency curbs demand for US goods

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

Bad news came in from the US on Friday as its Commerce Department announced a fall in its second estimate of the first quarter gross domestic product (GDP). The data was driven by harsh winter weather and a strong dollar causing a large trade deficit and slower pace of restocking by firms compared to earlier predictions.

The country’s GDP shrank by 0.7 percent during the January-March period instead of the 0.2 percent growth pace anticipated last month, however it was close to the economists estimate of a 1 percent contraction.

The Bureau of Economic Analysis reported that “the decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending.”

Although the economy is expected to recover soon, the fall in the country’s GDP was noted as the third quarterly fall since the economy recovered from recession in 2009. 

The final GDP estimate will be announced in June. 

However economists believe that the first quarter figures were weighed down by temporary factors and problems with the technique used by the government to smooth the data for seasonal fluctuations.

The country’s consumer spending increased by 1.8 percent in the first quarter, revised down from an initial estimate of 1.9 percent. 

Moreover, business investment (spending on construction, machinery, and research and development) fell by 2.8 percent, its biggest fall since 2009.

The trade deficit slumped to 1.9 percentage points, the highest since 1985, against a previous estimation of 1.25 points due to the strong dollar and port disputes. 

Similarly, exports shot down to 7.6 percent, greater than the forecast of 7.2 percent. Exports of US goods showed their biggest fall in six years as they dipped by 14 percent.

The reluctance of companies to spend money on restocking goods surprised observers. This in turn played a major role in the fall of overall GDP. 

TRTWorld and agencies