US GDP Contracts in Q1 Due to Cold Weather

US economy now one quarter away from a recession, but analysts are confident that growth will bounce back on strong consumer spending.

The US economy contracted for the first time in three years in early 2014 after a much worse performance than originally feared.

Washington’s commerce department said the world’s biggest economy shrank at an annual rate of 1% during the first quarter – a period marked by an unusually harsh winter in some of the more populous states.

Wall Street had been braced for the revised data to come in below the first estimate of 0.1% annualised growth between January and March but was surprised by the extent of the decline.

Analysts are confident that growth will bounce back in the second quarter and pointed to the underlying strength of consumer spending during the period when the economy was contracting.

ING’s James Knightley said most of the downward revision to growth had been caused by companies running down their stocks and said the contraction was not as bad as it looked.

Noting that many companies were likely to have run down inventories due to transport problems caused by the bad weather, Knightley added: “With demand indicators looking pretty good for the second quarter of 2014 we are expecting a much stronger outcome for GDP growth in the current quarter (4.5% annualised) with inventory rebuilding likely to play its part.”

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza