US economy contracts in first quarter of 2014

The Financial District in Manhattan is viewed from New York Harbor on April 30, 2014 in New York City. The US economy contracted at an annual rate of 1.0 per cent in the first three months of 2014, a significantly weaker performance than initial
The Financial District in Manhattan is viewed from New York Harbor on April 30, 2014 in New York City. The US economy contracted at an annual rate of 1.0 per cent in the first three months of 2014, a significantly weaker performance than initially estimated, official data showed Thursday, May 29, 2014. -- PHOTO: AFP

NEW YORK (AFP) - The US economy contracted at an annual rate of 1.0 per cent in the first three months of 2014, a significantly weaker performance than initially estimated, official data showed Thursday. It was the first time the world's largest economy shrank since the 2011 first quarter.

The contraction was twice as strong as analysts' consensus estimate. The Commerce Department previously estimated gross domestic product (GDP) grew a tepid 0.1 percent in the first quarter that was marked by unusually severe winter weather.

The weakness was more than accounted for by a marked decline in inventory investment, especially by motor vehicle dealerships, the Commerce Department said. Inventory investment was revised down, particularly in retail trade, manufacturing, mining, utilities and construction. Excluding inventory investment, GDP grew 0.6 per cent in the first quarter.

Imports, which subtract from GDP, were revised higher. Also contributing to the fall in GDP were declines in exports, business investment, state and local government spending and housing investment.

"Ouch. The bad news is that the headline GDP number is worse than consensus, but the good(ish) news is that almost all the hit is in the inventory component," said Ian Shepherdson of Pantheon Macroeconomics in a research note.

Analysts view the first-quarter slump as largely winter weather-related after the economy grew 2.6 percent in the 2013 fourth quarter. Economic indicators have pointed to a rebound in activity in the second quarter. "We still think Q2 growth of about 3.0 percent is a decent bet," said Mr Shepherdson.