Q1 GDP Growth Slumps 1%

The Commerce Department released its second estimate for Q1 Gross Domestic Product (GDP) today (link opens as PDF), and things are worse than expected. For the first quarter of 2014, GDP fell at a seasonally adjusted annual rate of 1%.

This latest report comes as a blow to economic optimists, but after Q4's strong 2.6% growth rate, analysts had been expecting a downturn. However, their 0.5% contraction estimate proved better than the estimate delivered today. 

The government's initial estimate, given last month, was that GDP during the first quarter grew by a slight 0.1%. The economy last posted a decline in the first three months of 2011 when it dropped 1.3%.

According to the report, the main reason for Q1's downward revision in today's report was a larger than previously estimated drop in private inventory investments. The Wall Street Journal cited "adverse weather" as a more specific reason for Q1's dip into the red. The Associated Press reports that the weakening reflected slower stockpiling by businesses, a cutback in business investment, and a wider trade deficit. However, according to the AP, economists expect a robust rebound in the April-June quarter as the country shakes off the effects of a severe winter.

From Q4 2013 to Q1 2014 overall, GDP felt the squeeze from drops in exports, fixed investment, state and local government spending, private inventory investment, and imports, which count negatively toward GDP. As a sign of some bottom-up economic confidence, however, consumer spending increased in the first quarter.

While this report is based on incomplete data, the final Q1 2014 GDP estimate is scheduled be released on June 25.

This estimate of the quarter's GDP growth took a hit, but analysts will need to wait to see how warmer Q2 fares before making any longer-term calls on the economy's course.

-- Material from The Associated Press was used in this report.

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