Economy not quite so bad in 1st quarter, revised to 0.2% contraction

The stumble in economic growth in the first quarter of the year wasn't quite as bad as earlier estimated, according to the latest and final revision by the Commerce Department.

Gross domestic product, the key measure of economic activity, decreased at a 0.2% annual rate from January through March, the department said Wednesday.

That was an improvement over the 0.7% contraction reported last month but still down sharply from 2.2% growth in the fourth quarter last year.

The latest estimate of first-quarter growth was in line with analyst forecasts. The Commerce Department said exports fell less than in the second estimate released in May, while imports and consumer spending had larger increases.

Still, the contraction was a disappointment in a year that many economists hoped would show increased growth from the tepid pace of the recovery from the Great Recession.

Caused largely by unusually bad winter weather and the labor dispute at West Coast ports, the first-quarter contraction was just the third since the recession ended six years ago this month.

With those problems over, the economy is forecast to grow about 2% in the second quarter.

But the pace of growth remains below the economy's full potential, held back by a rising dollar that makes U.S. goods more expensive abroad and a slowdown in the oil industry caused by lower prices.

The Commerce Department said first-quarter consumer spending was stronger than estimated last month, revised to a 2.1% increase from a 1.8% increase. But that was less than half the 4.4% rise in consumer spending in last year’s final three months.

The latest revision showed exports decreased 5.9% in the first quarter, smaller than the 7.6% decline reported last month. Exports had increased 4.5% in the fourth quarter.

Imports rose 7.1% in the first quarter, up from an earlier estimate of 5.6%. Imports increased 10.4% in the fourth quarter.

The improved first-quarter data could spur Federal Reserve policymakers to decide sooner rather than later to increase the central bank's key short-term interest rate from the near zero percent level where it has been since late 2008.

Fed officials declined to raise the rate after their meeting last week, but will have another opportunity next month. Economists widely expect an increase to 0.25% to come in the policymakers’ September meeting.

Follow @JimPuzzanghera on Twitter

Copyright © 2016, Los Angeles Times