US economy shrunk by 3% in quarter one, worst setback in five years

Naysayers and doomsday prognosticators are certainly patting themselves on the back after the news that the U.S. economy took its biggest step backwards since 2009.

photo: TaxRebate.org.uk

Gross domestic product, the broad measure of goods and services produced across the economy, contracted at a seasonally adjusted annual rate of 2.9% in the first three months of the year, according to the Commerce Department’s third reading released Wednesday. That was the fastest rate of decline since the first quarter of 2009, when output fell 5.4%, and matches the average pace of declines during the recession.

“GDP was recession-like in the first quarter, although most other data clearly signal that the decline is an outlier,” said Jim O’ Sullivan, economist at High Frequency Economics. Of course O’Sullivan stated in February, in the midst of this downfall, that the GDP would rise 3.3% in 2014.

“I don’t see where it [a slowdown] is coming from,” O’Sullivan tells MarketWatch at the time, described as ” the most accurate forecaster in MarketWatch’s survey of economists during the past 10 years.”

The last time the economy shrank was in the first quarter of 2011, almost two years after the 2007-2009 recession ended, when it slipped 1.3%. Obamacare spending alone is credited with subtracting 0.16% from growth.

White House analysis states that “The entire decline in overall GDP in the first quarter can be accounted for by a decline in exports and a slowdown in inventory investment, two particularly volatile components of GDP,” before attributing the problem to cold weather.

Residential investment—including expenditures on home construction, improvement and broker’s commissions—fell by a 4.2% pace in the first quarter, revised from the previous estimate of a 5% fall. The housing market rebound, an important growth driver earlier in the recovery, was derailed in late 2013 by cold winter weather and rising mortgage rates.

“It does not sound like the economy has reached escape velocity no matter how you try to spin it,” said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. “It’s going to take some big numbers the rest of 2014 for the economy to hit 2% growth.”

Paul Dales of Capital Economics said the contraction “was still largely due to the extreme weather” and “not a sign that the U.S. is suffering from a fundamental slowdown.”

Read Latest Breaking News from Newsmax.com http://www.moneynews.com/Economy/OSullivan-GDP-growth-economy/2014/02/12/id/552388#ixzz35gp2cUs1
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Read Latest Breaking News from Newsmax.com http://www.moneynews.com/Economy/OSullivan-GDP-growth-economy/2014/02/12/id/552388#ixzz35gojBcDc
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