US economy contracts slightly in first quarter

Consumer spending, which accounts for more than two-thirds of US economic activity, was revised upwards to a 2.1 per cent growth pace from the 1.8 per cent rate reported last month.
Consumer spending, which accounts for more than two-thirds of US economic activity, was revised upwards to a 2.1 per cent growth pace from the 1.8 per cent rate reported last month.PHOTO: AGENCE FRANCE-PRESSE

But rises in consumer spending and home building point to growth ahead

WASHINGTON - The world's biggest economy shrank in the first quarter, although not as much as previously estimated, assisted by a bigger gain in consumer spending.

US gross domestic product (GDP) fell at a 0.2 per cent annualised rate, compared with a previously reported 0.7 per cent drop, according to revised data from the Commerce Department yesterday. That matched the median forecast of 76 economists surveyed by Bloomberg.

The harsh winter and port delays that dampened growth at the start of the year have given way to increases in consumer spending and housing, bolstering Federal Reserve projections that the setback was temporary.

Still, pockets of weakness remain as lower oil prices continue to hinder investment in the energy industry and a firm US dollar restrains global sales.

"The first quarter was clearly very soft, but a lot of it was due to temporary factors," said Mr Stephen Stanley, chief economist at Amherst Pierpont Securities in Connecticut, before the report. "The rebound in the second quarter should be good, with the focus on the consumer."

Consumer spending, which accounts for more than two-thirds of US economic activity, was revised upwards to a 2.1 per cent growth pace from the 1.8 per cent rate reported last month.

With personal savings increasing at a robust US$720.2 billion (S$967.6 billion) pace, consumer spending could accelerate in the second quarter.

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.

In addition to consumer spending, bigger gains in inventories and home building, and a smaller decline in non-residential structures also helped lift GDP in the first quarter.

While the cutbacks in oil exploration and drilling in the wake of plunging crude prices hurt the first quarter, economists anticipate the worst may be over as crude prices have steadied.

Business investment is stabilising, data showed on Tuesday. Bookings for non-military capital goods excluding aircraft - a proxy for future corporate spending - rose in May after dropping the prior month.

Trade remained a sore spot, with the gap between exports and imports swelling. The deficit subtracted 1.9 percentage points from growth, the most since 1985.

This was the third GDP reading for the quarter, with future updates coming once a year in July as more detailed data becomes available.

The first estimate of second- quarter GDP is due on July 30. The economy will expand at a 2.5 per cent rate from April through June and average 3 per cent growth in the second half of the year, according to the median projection of economists surveyed by Bloomberg from June 5 to 10.

Central bankers had earlier signalled that a pick-up in the economy will keep them on track to raise interest rates this year, though subsequent increases are likely to be more gradual than anticipated earlier.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on June 25, 2015, with the headline 'US economy contracts slightly in first quarter'. Print Edition | Subscribe