AP: US economy fell at 0.7 pct. rate in winter but is rebounding

-0.7 %

By Martin Crutsinger
AP Economics Writer
May 29, 2015 – 10:39 am. EDT

WASHINGTON (AP) — The U.S. economy shrank at a 0.7 percent annual rate in the first three months of the year, depressed by a severe winter and a widening trade deficit.

The government’s revised estimate for last quarter was weaker than its initial estimate of a 0.2 percent growth rate. The U.S. trade gap – the difference between the value of exports and the larger value of imports – was found to be wider than first estimated. And consumer spending was slower than previously thought.

But steady job gains are expected to fuel modestly healthy growth for the rest of 2015. The harsh winter, which kept many consumers home and businesses closed, and a labor dispute that slowed trade at West Coast ports are both over. Home sales and construction are rebounding, along with business investment.

Analysts generally foresee the economy, as measured by the gross domestic product, growing at an annual rate of 2 percent to 2.5 percent in the April-June quarter, with further strengthening later in the year. But risks remain: A stronger dollar, which makes U.S. exports more expensive, will likely continue to keep the trade deficit wide. And cutbacks in oil drilling, a result of low energy prices, could depress spending in the energy industry.

“While the evidence of a second-quarter rebound hasn’t been overwhelming, we still think that the outlook for the economy is very encouraging,” Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a research note.

Last quarter’s contraction marked the first since a 2.1 percent annual drop in the first three months of 2014, a slump that was also due in part to severe winter weather.

Last quarter, the trade gap subtracted 1.9 percentage points from growth, the biggest drag in 30 years. Consumer spending, which drives about 70 percent of economic activity, slowed to annual growth of just 1.8 percent for the quarter, slightly below the government’s first estimate. Consumers spent less on mobile phone services, among other expenses, than first estimated.

One of the biggest hits to the economy last quarter came from cuts in drilling activity by energy companies, fallout from the sharp drop in oil prices over the past year. The government said investment in the category that covers energy exploration plunged at an annual rate of 48.6 percent, the steepest drop since 2009, during the Great Recession.

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