US economy shrank at 0.7 per cent rate in first quarter

The US economy went into reverse in the first three months of this year as a severe winter and a widening trade deficit took a harsher toll than initially estimated.
The overall economy as measured by the gross domestic product contracted at an annual rate of 0.7 per cent in the January-March period, the Commerce Department reported today.
The revised figure, even weaker than the government's initial estimate of a 0.2 per cent growth rate, reflects a bigger trade gap and slower consumer spending.
It marked the first decline since a 2.1 per cent contraction in the first three months of 2014, a slump that was also blamed on winter weather.

Economists expect a rebound in the current quarter to growth of around 2 percent and expect the economy to strengthen later this year.
Much of the new-found weakness came from a widening trade deficit, reflecting weaker exports and a bigger jump in imports than first estimated.

Trade subtracted 1.9 percentage point from growth, up from the 1.25 percentage point drag initially estimated. American manufacturers are struggling with a stronger dollar, which hurts exports by making their goods more expensive on overseas markets and makes foreign goods cheaper for American consumers.
Consumer spending, which accounts for about 70 per cent of economic activity, slowed to growth of just 1.8 per cent in the first quarter, slightly below the 1.9 per cent growth initially estimated.

The government said consumers spent less on their cell phone services than first thought.
One of the biggest hits to the economy in the first quarter came from huge cutbacks in drilling activity by energy companies, a fallout from the big drop in oil prices over the past year.
The government said that investment in the category that covers energy exploration plunged at a rate of 48.6 per cent, the biggest drop since spring of 2009, when the country was still in recession.
Though falling GDP can be a sign of a recession, economists see little cause for concern with the first quarter drop.

They are forecasting solid GDP growth the rest of the year, with steady job gains propelling the economy. A harsh winter is gone. So is a labor dispute that slowed trade at West Coast ports. Home sales and construction are rebounding. Business investment is picking up.