The U.S. economy shrunk at a 0.7 percent annual rate in the first quarter, the Commerce Department reported Friday.
Seasonally-adjusted gross domestic product was revised down from 0.2 percent annual growth to negative 0.7 percent in the wake of lower net exports and smaller private inventory investments than previously reported. The revision, which was widely expected by investors, marked a significant slowdown from the fourth quarter of 2014, when the economy was expanding at a 2.2 percent annual rate.
Friday’s revision marks the second year in a row in which first-quarter growth has been negative, again raising concerns that the U.S. economic recovery may be in doubt.
Despite the weak gross domestic product growth in the first quarter, many top policymakers and investors have expressed optimism about commerce picking up later in the year.
Some of the factors slowing growth early in the year are “transitory,” the Federal Reserve’s monetary policy committee explained earlier in the year. Those effects include unusually harsh winter weather, labor strikes at ports on the West Coast, and massive movements in oil and foreign exchange markets that have crimped business for energy producers and U.S. exporters.
Officials have also pointed to the possibility that the Bureau of Economic Analysis’ seasonal adjustments to gross domestic product have failed to account for some regular winter fluctuations in business, artificially driving down measured economic growth.
Republicans, on the other hand, have sought to pin blame on President Obama’s economic policies.
“This is just another in a disappointing string of news about the economy,” said Texas’ Kevin Brady, the top House Republican on the Joint Economic Committee, reacting to Friday’s report. “The lack of growth experienced in this recovery has led to substandard job growth and stagnant incomes.”
So far in 2015, the discouraging signals from gross domestic product reports have been somewhat contradicted by indicators from the labor market.
The U.S. added 223,000 jobs in April, according to the Bureau of Labor Statistics, just enough to suggest that the jobs outlook remains positive. Meanwhile, weekly readings of layoffs in initial claims for unemployment insurance benefits have been running near 15-year lows.
The Federal Reserve expects gross domestic product growth to pick up in the coming quarters. Gross domestic income, a separate measure of economic growth that counts income rather than spending, grew at a 1.4 percent annual rate in the first quarter, bolstering hopes that the gross domestic product result is not indicative of the underlying trend in growth.
The primary drivers of the decline in gross domestic product in the first quarter were falling net exports, declining investment, and falling state and local government spending.
Trade subtracted 1.9 percentage points from the growth rate. Imports count against gross domestic product, while exports boost it. The trade gap was at its largest, over $50 billion, in March, thanks in large part to a weak dollar. As other developed countries have moved to loosen monetary policy at the same time the Federal Reserve has eyed raising interest rates, U.S. exports decreased at a 7.6 percent annual clip in the first quarter, according to Friday’s release.
Friday’s report was the second estimate of first-quarter growth. The third and final revision will be published on June 24.
