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Economy shrank less than previously estimated in Q1

Economy shrank less than previously estimated in Q1

The economy contracted slightly in the first three months of the year, but wasn’t as weak as the government estimated earlier, thanks to a bigger gain in consumer spending and a lower drop in exports. Gross domestic product (GDP) – the value of goods and services produced in the U.S. – shrank 0.2% in the first quarter, according to the final revision released Wednesday by the Commerce Department.AP GERMANY ECONOMY I FILE DEU

The government estimate was less severe than the 0.7% contraction released in May and right in line with economists’ expectations in an Econoday study. The Commerce Department typically revises GDP estimates three or more times. After growing 2.2% overall in the fourth quarter of 2014, the economy struggled in the first quarter of 2015 due to severe winter weather, labor disputes on the West Coast, a stronger dollar and low oil prices. With milder weather and the port strikes resolved, economists expect the economy to bounce back from its winter woes in the second quarter.

Barclays researchers are predicting a 3% expansion for second-quarter GDP, to be released July 30. A second-quarter comeback is not unusual: In 2014, the economy contracted at a 2.1% annual rate in the first quarter, then expanded at 4.6% and 5% annual paces in the next two quarters. The strong greenback, however, remains a concern. While interest rates are expected to rise in the U.S., Europe is seeing currency devalued by quantitative easing and a weak economy. That has led to an exchange rate that is unfavorable for U.S. manufacturers hoping to sell goods overseas.

Wednesday’s report on the first quarter showed an addition of 0.5 percentage points to GDP, or $23.6 billion, as exports decreased less than previously estimated. Personal spending and nonresidential investment also boosted the number, used to measure the size of a country’s economy. Personal spending grew 2.1% in the first quarter, as consumers shelled out on services like housing, utilities, health care and transportation. That was revised upward from original estimates of 1.9%, although it was still slower than the 4.4% growth of Q4 2014.


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