The US economy is contracting for the first time since 2011. The growth rate for gross domestic product (GDP) in the first three months of the year was revised down from an annualised pace of 0.1% to a contraction of 1.0%.
Yet, the US benchmark stock index – the S&P 500 – rose to a record high, climbing 0.5% to close at 1,920 on the day.
The prospect of the world’s largest economy contracting is worrying, but this is a negative quarter caused by short-term factors.
The contraction is largely due to a downward revision to private firms’ inventories.
Besides, the economy wasn’t performing well in any case. The first estimate of GDP was stagnant due to bad weather. The revision to inventories just pushed it into negative territory which the economy was already on the cusp of.
Freezing conditions closed factories and construction sites as well as affected stores.
Investment dropped by 1.6% – spending on buildings, housing, equipment all decreased – but spending on intellectual property rose. The latter isn’t affected to the same extent by weather as the others.
There was also a negative impact on the production of exports, which fell by 6%. Imports rose by 0.7% as consumers were still buying.