Economy shrank 2.9% in 1st quarter, much worse than earlier estimates

The economy had its worst quarterly performance since the Great Recession, contracting at an annual rate of 2.9% in the first three months this year as severe weather took a heavier toll than initially thought, according to the Commerce Department.

The contraction in total economic output in the first quarter was a huge downgrade from an earlier estimate that the gross domestic product — the value of goods and services produced in the country — shrank at a 1% annual rate in the period.

Wednesday’s figure, the third and final revision of first-quarter data, was much worse than the 1.8% annualized contraction economists had forecast.

Since then, however, growth has shown signs of rebounding strongly with improved weather improved and pent-up demand. Economists are forecasting the economy will expand at about a 3.5% annual rate in the second quarter.

But the horrible start to 2014 will drag down the year’s overall economic output.

Last week, the International Monetary Fund reduced its estimate for U.S. growth this year to a modest 2% from an April projection of 2.8%.

The first-quarter contraction was the worst since the economy shrank at a 5.4% annual rate in the first quarter of 2009 in the depths of the Great Recession.

Since the recession ended five years ago, the economy has contracted only one other time — to an annual rate of 1.3% in the first quarter of 2011. A recession generally is defined as two straight quarters of negative growth.

Economists knew the recovery stumbled badly in the winter months this year as heavy snow and bitter cold in much of the nation closed many businesses, keeping shipments from moving and consumers at home.

The revised data showed things were worse than anticipated.

Consumer spending rose just 1% in the first quarter, down sharply from last month’s estimate of 3.1%. It was the smallest gain in consumer spending since the fourth quarter of 2009, the Commerce Department said.

Consumer spending accounts for more than two-thirds of total economic activity. It had been up 3.3% in the fourth quarter of last year when the economy grew at a 2.6% annual rate.
In addition, U.S. exports plummeted 8.9% in the first quarter, down from last month’s estimate of a 6% drop.

Exports hadn’t fallen by that much since the first quarter of 2009. They had risen 9.5% in last year’s final three months.

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