U.S.
first-quarter GDP revised to show slight contraction
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[June 24, 2015] WASHINGTON
(Reuters) - The U.S. economy contracted slightly in the first quarter as
it struggled with bad weather, a strong dollar, spending cuts in the
energy sector and disruptions at West Coast ports.
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There are signs, however, that growth is accelerating in the second
quarter as the temporary drag from unusually heavy snowfalls and the
ports dispute fade. Retailers reported strong sales in May and
employers stepped up hiring. Housing is also firming.
The Commerce Department said on Wednesday gross domestic product
fell at a 0.2 percent annual rate in the January-March quarter
instead of the 0.7 percent pace of contraction it reported last
month.
A fairly stronger pace of consumer spending than previously
estimated accounted for much of the upward revision. Consumer
spending, which accounts for more than two thirds of U.S. economic
activity, was revised up to 2.1 percent growth pace from the 1.8
percent rate reported last month.
With personal savings increasing at a robust $720.2 billion pace,
consumer spending could accelerate in the second quarter.
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While export growth was revised higher, that was offset by an upward
revision to imports, leaving a still-large deficit that subtracted
almost 2 percentage points from GDP.
The GDP revision was in line with economists' expectations. The
economy expanded at a 2.2 percent rate in the fourth quarter.
But the first-quarter slump in output likely is not a true
reflection of the economy's health. Economists, including those at
the San Francisco Federal Reserve Bank, say a problem with the model
the government uses to smooth the data for seasonal fluctuations
also contributed to depressing the GDP number.
They have argued the so-called seasonal adjustment is not fully
stripping out seasonal patterns, leaving "residual" seasonality. The
government said last month it was aware of the potential problem and
was working to address it when in publishes annual GDP revisions in
July.
When measured from the income side, the economy expanded at a 1.9
percent rate in the first quarter instead of the previously reported
1.4 percent pace. A measure of domestic demand growth was revised up
four-tenths of a percentage point to a 1.2 percent rate.
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Economists estimate unusually heavy snowfalls in February sliced off
at least one percentage point from growth.
Estimates for spending on equipment were little changed. Business
spending has been hurt by a strong dollar and lower energy prices.
Businesses accumulated slightly more inventories than previously
estimated in the first quarter, which could mean they have little
incentive to keep on adding to stock in the current quarter. The
value of inventory accumulated in the first quarter was revised up
to an increase of $99.5 billion from the $95 billion rise reported
last month.
That meant inventories contributed 0.45 percentage point to GDP
instead of the previously reported 0.33 percentage point.
Inventories could be a drag on second-quarter GDP.
After-tax corporate profits were a bit weaker in the first quarter
than previously thought. Profits after tax with inventory valuation
and capital consumption adjustments were revised to show a 8.8
percent decline instead of the 8.7 percent drop reported last month.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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