In a sharp downward revision of its estimate for growth at the start of 2014, the Commerce Department said Thursday that the US economy shrank at an annual rate of 1 per cent last quarter.
Experts had predicted the revised data for the first quarter would be lacklustre, and growth is expected to revive in the current quarter. Still, the economy's performance in the period of January, February and March reflects the first quarterly decline in three years.
The unusually cold winter has been blamed by the US Federal Reserve and private economists for a substantial part of the slowdown. But the revision Thursday was prompted by slower additions to inventories on the part of businesses and a slightly weaker trade balance than first thought.
The initial estimate by the Commerce Department released last month showed the economy grew at a rate of 0.1 per cent, and economists on Wall Street were expecting Thursday's revision to show a 0.5 per cent rate of contraction.
In the current quarter, the growth rate is expected to rebound to between 3 and 4 per cent on annual basis, putting the economy back on the growth trajectory it reached in the second half of 2013. And a final revision of the first quarter's performance will be released June 25.
"Even if gross domestic product does show a contraction, I don't believe the economy is in any danger," said Gus Faucher, senior economist at PNC Financial Services, in an interview before the release of the data. "We had a hit in terms of weather and we will see a bounce back in activity in the second quarter."
Still, the on-again, off-again pattern of economic expansion in the current recovery explains why so many Americans remain sceptical that things really are getting better, despite strong corporate profits and a booming stock market.
Earlier this week, the Standard & Poor's 500-stock index hit a fresh high, and the index is up over 3 per cent so far this year. In 2013, the S&P index rose nearly 30 per cent.
Despite the likelihood of a pick-up this quarter, economists have been reassessing the prospects for growth over the next year or two, said Michael Hanson, senior United States economist at Bank of America Merrill Lynch.
"Many market participants are pricing in lower growth than they expected six months ago," said Hanson, adding that these concerns about the potential of the economy to sustain faster growth over time may help explain why investors have piled into Treasury bonds recently, including on Wednesday, driving yields sharply lower.
At 2.45 per cent Wednesday, the yield on the benchmark 10-year Treasury bond was close to lows last seen a year ago, when the Federal Reserve started to signal it would begin easing its efforts to stimulate the economy.
Treasury bond yields typically rise when economic growth picks up, but yields are half a percentage point lower now than they were at the start of 2014. Fed officials have said they plan to keep reducing their stimulus efforts through the end of 2014 and have indicated they will begin raising short-term rates in the second half of 2015.
©2014 The New York Times News Service
