Shrinking US economy expected to rebound with surge in demand
THE economy in the US contracted for the first time in three years in the first quarter as companies added to inventories at a slower pace and curtailed investment.
GDP fell at a 1pc annualised rate in the first quarter, a bigger decline than projected, after a previously reported 0.1pc gain, the Commerce Department said in Washington. The last time the economy shrank was in the same three months of 2011. Economists had forecast a 0.5pc drop.
A pick-up in receipts at retailers, stronger manufacturing and faster job growth indicate the first-quarter setback will prove temporary as pent-up demand is unleashed. Federal Reserve policy-makers said at their April meeting that the economy has strengthened after adverse weather took its toll.
"The good news is that the first quarter is over, it was a difficult one," said Ryan Sweet, senior economist at Moody's Analytics Inc. "I wouldn't worry too much about the decline, it's mostly driven by less construction spending and less inventory accumulation. This quarter should be a good one."
Another report showed fewer Americans than forecast filed for unemployment benefits last week. Jobless claims dropped by 27,000 to 300,000. The four-week average decreased to the lowest level since August 2007.
Stock-index futures held gains after the figures. The contract on the Standard & Poor's 500 Index expiring in June rose 0.1pc to 1,911.5 in New York.
Yesterday's GDP estimate was the second of three readings for the quarter with the final release scheduled for June 25.
Companies boosted stockpiles by $49bn (€36bn) in the first quarter, less than the $111.7bn (€82bn) in the final three months of 2013. Inventories subtracted 1.62 percentage points from GDP from January to March, the most since the fourth quarter 2012. Slower inventory accumulation may encourage factories to step up production should demand accelerate.
"Growth in key indicators such as employment, income, and consumer spending have recently begun to improve from weather-affected levels earlier in the year," Robert Niblock, the CEO at home-improvement retailer Lowe's Cos, said on a May 21 earnings call. "Performance has already improved in May, and continued improvement in the macroeconomic landscape and the consumer sentiment" help give the chain a positive outlook in 2014.
The economy in the second quarter will expand at a 3.5pc rate, according to economists. For all of 2013, the economy expanded 1.9pc after a 2.8pc gain in the prior year.