First-quarter growth revised down, again

06/25/2014 12:50 PM

06/27/2014 5:57 PM

Government statisticians revised sharply down Wednesday the U.S. growth rate from January through March, but economists shrugged it off amid other signs that the economy was powering forward.

The nation’s rate of growth contracted 2.9 percent in the first quarter, the Bureau of Economic Analysis reported in its third and final estimate for the period.

That was significantly worse than the 1 percent contraction the BEA had reported in its second estimate of growth from January to March, and the slight 0.1 percent growth rate offered in BEA’s first estimate.

The BEA attributed the sharp third revision_ the largest quarterly contraction since 2009_ to a steep decline in healthcare spending. Also to blame: a rise in imports, which subtract from gross-domestic product, the broadest measure of U.S. goods and services, as well as drop in exports and lower than estimated consumer spending.

Some economists blamed the harsh winter for slowing consumption, construction, transportation and a host of other sectors of the economy.

“If GDP were truly so weak, we would not expect aggregate hours worked to climb 3.7 percent annualized through May, jobless to remain near cycle lows, consumer confidence to hit a cycle high, industrial production to climb 5.0 percent at an annual rate over the first five months of the year, ISM (manufacturing index) to be above 55, and vehicle sales to hit their strongest annualized selling pace for the year,” said Neil Dutta, director of economic research for forecaster Renaissance Macro Research. “GDP is the outlier in these data points. I will roll my eyes and move on.”

The Federal Reserve and the White House have both blamed unusually cold weather for much of the slowdown, a view repeated Wednesday by Jason Furman, chairman of the White House Council of Economic Advisers.

In an analysis, Furman noted that “consumer spending on utilities surged more than 40 percent at an annual rate in the first quarter, the largest increase on record (with data back to 1959).”

The spending on utilities still contributed to growth, he said, but with a caveat.

“While this weather-related jump in utilities spending added to GDP growth, it was likely more than offset by the constraining effect of severe weather on other categories, including other components of consumer spending (like autos, household furnishings, and restaurants), some components of private and public fixed investment, and exports,” Furman said.

Other economists caution that the size of the revision is cause for concern.

“While some of the 2.9 percent GDP contraction can be attributed to a very taxing and persistently stormy winter, the magnitude of the contraction suggests that the economy’s weaknesses remain well in place more than five years after the end of the worst downturn of the post–World War II era,” said Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation, a trade group for manufacturers.

A bevy of other data points suggest the U.S. economy is rebounding in the second quarter, which ends on June 30. But the revisions, he warned, remind of lingering risks.

“The U.S. economy will likely resume a path of moderate growth for the balance of this year and into 2015, while manufacturing will continue to show moderate and possibly accelerating growth,” Waldman predicted. “But the risks for the economy and for the factory sector are clearly to the downside.”

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