GDP's slide is unlikely to last through spring

WASHINGTON — The U.S. economy took a beating from an especially harsh winter during the January-March quarter, skidding into reverse for the first time in three years. But spring has arrived, and along with it signs that the chill was just a temporary setback in the long road to recovery.

Gross domestic product contracted at an annual rate of 1 percent in the first quarter, the Commerce Department said Thursday. That was worse than the government's initial estimate that GDP grew by a slight 0.1 percent. The economy last posted a decline in the first three months of 2011 when it dropped 1.3 percent.

Since then, the labor market has continued to improve, consumer spending is solid and manufacturers are benefiting from increased spending. Economists expect a robust GDP rebound in the April-June quarter as a result.

"We knew that weather dramatically impacted growth in the first quarter, and we fully expect a bounce back in the second quarter," Dan Greenhaus, chief strategist at BTIG, wrote in a note to clients.

Other analysts noted that consumer spending, which accounts for 70 percent of economic activity, was very strong in the first quarter, growing at an upwardly revised 3.1 percent annual rate. A report earlier this week showed that consumer confidence is climbing, with nearly one-fifth of Americans expecting their incomes to grow over the next six months.

And earlier this month, the Institute for Supply Management said that manufacturing grew faster in April than March as exports picked up and factories accelerated their hiring.

The data released Thursday primarily reflected a sharp slowdown in businesses stockpiling, which subtracted 1.6 percentage points from growth, a full percentage point more than the initial estimate. Analysts noted that the weaker inventory figure would likely translate into more restocking and stronger growth in the second quarter.

The 1 percent decline in the first quarter was only the second negative quarterly GDP reading since the current recovery began in June 2009. In the fourth quarter, the overall economy grew at an annual rate of 2.6 percent.

Many economists estimate that the GDP will post a sizable rebound to growth of about 3.8 percent in the current quarter, fueled by pent-up demand. Analysts are also optimistic that growth will remain above 3 percent in the second half of this year, giving the economy the kind of strength that has been lacking for much of the first five years of recovery from the country's worst recession since the 1930s.

GDP's slide is unlikely to last through spring 05/29/14 [Last modified: Thursday, May 29, 2014 6:50pm]

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