The U.S. economy contracted at a much steeper pace in the first quarter than previously estimated, turning in one of its worst-ever non-recession performances, but growth already appears to have rebounded strongly.
The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the sharpest decline in five years, instead of the 1.0 percent pace it had reported last month.
"It's a scary report. It sounds worrisome, but keep in mind job growth is running 200,000 each of the last four months, so we aren't just whistling in the dark in our optimism over the outlook," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The economy was held back by an unusually cold winter, the expiration of long-term unemployment benefits and cuts to food stamps, which curbed consumer spending. It was also weighed down by a slowdown in the pace of restocking by businesses.
All these temporary factors have since faded, lifting growth early in the second quarter.
The government's gauge of first-quarter growth has been lowered by 3.0 percentage points since the first estimate in April showed the economy expanded at a 0.1 percent rate, and the revision between the May and June release was the largest on records going back to 1976.
Economists had expected the revision to show the economy shrinking at a rate of only 1.7 percent. Given the sharp downgrade, growth this year could struggle to reach 2 percent.
Investors shrugged off the weak data and bought U.S. stocks. Prices for U.S. Treasury debt were up at mid-day, while the dollar was marginally weaker against a basket of currencies.
The latest GDP revision reflected a weaker pace of healthcare spending than previously assumed, which led to a cut in the figure for consumer spending to show the slowest rise since the fourth quarter of 2009. Trade was also a bigger drag on the economy than previously thought.
Source: Reuters
The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the sharpest decline in five years, instead of the 1.0 percent pace it had reported last month.
"It's a scary report. It sounds worrisome, but keep in mind job growth is running 200,000 each of the last four months, so we aren't just whistling in the dark in our optimism over the outlook," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The economy was held back by an unusually cold winter, the expiration of long-term unemployment benefits and cuts to food stamps, which curbed consumer spending. It was also weighed down by a slowdown in the pace of restocking by businesses.
All these temporary factors have since faded, lifting growth early in the second quarter.
The government's gauge of first-quarter growth has been lowered by 3.0 percentage points since the first estimate in April showed the economy expanded at a 0.1 percent rate, and the revision between the May and June release was the largest on records going back to 1976.
Economists had expected the revision to show the economy shrinking at a rate of only 1.7 percent. Given the sharp downgrade, growth this year could struggle to reach 2 percent.
Investors shrugged off the weak data and bought U.S. stocks. Prices for U.S. Treasury debt were up at mid-day, while the dollar was marginally weaker against a basket of currencies.
The latest GDP revision reflected a weaker pace of healthcare spending than previously assumed, which led to a cut in the figure for consumer spending to show the slowest rise since the fourth quarter of 2009. Trade was also a bigger drag on the economy than previously thought.
Source: Reuters
