U.S. economy stumbles in first-quarter, but prospects brighter

Thu May 29, 2014 12:19pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy contracted for the first time in three years in the first quarter as it buckled under a severe winter, but there are signs it has rebounded and economists say it could grow as much as 4 percent in the current quarter.

The Commerce Department on Thursday slashed its estimate of gross domestic product to show the economy shrank at a 1.0 percent annual rate.

The worst performance since the first quarter of 2011 reflected a far slower pace of inventory accumulation and a bigger than previously estimated trade deficit.

These weather-related temporary factors should fade. Inventories, in particular, are expected to swing higher, boosting output in the April-June quarter.

"The race isn't over yet for the economy. Things are better than you think. We are still expecting a strong finish to the year," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

GDP was initially estimated to have grown at a 0.1 percent rate. It is not unusual for the government to make sharp revisions to GDP numbers as it does not have complete data when it makes its initial estimates.

A plunge in business spending on commercial property and plant was also a drag. Economists estimate severe weather could have chopped off as much as 1.5 percentage points from GDP growth. The economy grew at a 2.6 percent pace in the fourth quarter.

U.S. stocks were trading higher as investors focused on the brighter second-quarter growth prospects. Prices for U.S. Treasury debt rose, but the dollar fell against a basket of currencies.   Continued...

 
Containers await departure as crews load and unload consumer products at the Port of New Orleans along the Mississippi River in New Orleans, Louisiana June 23, 2010. REUTERS/Sean Gardner