The U.S. economy contracted at an annual rate of 1 percent in the first three months of 2014, official data showed on Thursday. The last time the world's largest economy shrank was the first quarter of 2011, but economists said they still expect a rebound from the latest figure.
The Commerce Department said the U.S. gross domestic product (GDP), the total value of goods and services produced by a country, shrank by 1 percent – a contraction twice as strong as analysts' consensus estimate. The drop represents a far slower pace of inventory accumulation, especially by motor vehicle dealerships, and a trade deficit that is bigger than previously estimated, the Commerce Department said.
Economists have described both of these factors as temporary ones, meaning a surge in growth is possible in the current quarter.
“There were lots of one-time factors that weakened growth, but that’s not to say the economy would have been growing strongly otherwise,” said Dean Baker, co-director of the Center for Economic and Policy Research think tank. “But we’re not going into a recession … This is an aberration, and there’s no reason to be terribly concerned.”
Baker said the harsh winter weather was a factor in the slow growth, as well as a fall in state and local government spending.
“A lot of that was that people didn’t come to work, and that’s reported as a fall in output,” Baker said.
Federal Reserve Chair Janet Yellen blamed the slowdown on the weather in February, and defended the agency’s controversial tapering program. Tapering, a financial term for the Fed’s reduction of the size of the bond-buying program known as quantitative easing (QE), is designed to stimulate the economy.
In Dec. 2013, the Fed announced its first reduction in QE from $75 billion per month from its original $85 billion level because the economy had strengthened, growing 2.6 percent in the fourth quarter of 2103.
The Fed is widely expected to continue reducing the program through 2014.
Although the outlook for the rest of the year is more positive, Baker said, “She (Yellen) should be very cautious at the rate at which she withdraws support from the economy" via tapering.
"For certain, we won’t have another hit in inventories, government spending will increase, and residential and non-residential construction will grow, resulting in growth of 3 percent or more in the second quarter,” Baker said. “That’s not great, but it’s respectable.”
Al Jazeera and wire services