US Economy Contracted in Q1 as Expected

The U.S. economy contracted in the first quarter but less than previously estimated as it struggled with bad weather, a strong dollar, spending cuts in the energy sector and disruptions at West Coast ports.

However, growth has since rebounded in the second quarter as the temporary drag from unusually heavy snowfalls and the ports dispute faded. Retailers reported strong sales in May and employers stepped up hiring. Housing is also strengthening.

The Commerce Department said on Wednesday gross domestic product fell at a 0.2 percent annual rate in the January-March quarter instead of the 0.7 percent pace of contraction it reported last month.

A fairly stronger pace of consumer spending than previously estimated accounted for much of the upward revision to GDP. Consumer spending, which accounts for more than two thirds of U.S. economic activity, was raised to a 2.1 percent growth pace from the 1.8 percent rate reported last month.

With personal savings increasing at a robust $720.2 billion pace as more Americans get a paycheck, consumer spending could accelerate in the second quarter. Spending could also get a boost from rising household wealth as home prices accelerate.

While export growth was revised higher, that was offset by an upward revision to imports, leaving a still-large deficit that subtracted almost 2 percentage points from GDP.

The GDP revision was in line with economists’ expectations.

via Reuters

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 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