US commerce department revises first-quarter GDP decline to 2.9pc

PUBLISHED : Wednesday, 25 June, 2014, 10:33pm
UPDATED : Thursday, 26 June, 2014, 12:25am

The US economy contracted at a much steeper pace than previously estimated in the first quarter to record its worst performance in five years, but there are indications growth has since rebounded strongly.

The Department of Commerce said yesterday that gross domestic product fell at a 2.9 per cent annual rate in the first quarter, instead of the 1 per cent pace it had reported last month.

While the American economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revision suggests other factors were also at play. Growth has now been lowered by a total of 3 percentage points since the US government's first estimate was published in April, which had the economy expanding at a 0.1 per cent rate.

The difference between the second and third estimates was the largest on records going back to 1976.

US stock index futures fell on the data, while prices for US government debt rose.

The latest revisions reflect a weaker pace of health care spending than previously assumed, which caused a downgrading of the consumer spending estimate. Trade was also a bigger drag on the economy than previously thought.

The US economy grew at a 2.6 per cent pace in the final three months of last year, while data on employment, manufacturing and services sectors point to a sharp acceleration in growth early in the second quarter of this year.

In a second report, the department said orders for long-lasting US manufactured goods fell 1 per cent last month.

Orders for such items, which range from toasters to aircraft that are meant to last three years or more, fell for the first time in three months.

They were dragged down by weak demand for transport, machinery, computers and electronic products, electrical equipment, appliances and components as well as a 31.4 per cent plunge in defence capital goods orders.

Economists estimate severe weather could have slashed as much as 1.5 percentage points from GDP growth in the first quarter.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 1 per cent rate in the first quarter, after previously having been reported to have advanced at a 3.1 per cent pace.