(MENAFN– ecpulse) The U.S. economy shrank by the most since the peak of the Great Recession in the first quarter as household spending slowed.
Gross domestic product, the broadest gauge of goods and services produced across the economy, contracted at 2.9% annualized rate, worse than expected and the biggest contraction since the first quarter of 2009, when output fell 5.9%. Analysts had expected a revision to -1.8% from -1.0%.
In its third GDP reading, based on newly available data, Commerce said first-quarter consumer spending and exports were even weaker than previously estimated.
Commerce had previously estimated output fell by 1% in the first quarter as manufacturers drew down inventories rather than produce new goods and as unusually harsh weather kept consumers at home and shut down work sites. Exports also declined after a surge late last year.
The revision reflected a drop in spending tied to health care services. The Bureau of Economic Analysis had estimated that major provisions of President Obama’s signature health care law would boost outlays.
The setback in the first quarter has slammed hopes the economy was set to be propelled into a higher gear.
Even as early second-quarter data indicates the economy is improving in the spring, as demand was boosted from warmer weather – the depth of the first quarter contraction means growth over the first half of the year likely fell below the economy’s average rate of just over 2% since the economy emerged from recession in June, 2009.
Five years into the expansion, high unemployment and stagnant incomes continue to restrain consumer spending, which accounts for more than two thirds of U.S. economic output.
Consumer spending grew by a 1% pace in the first quarter, revised down from the previous estimate of 3.1%. Commerce said the downward revision was primarily the result of weaker health-care spending, though it also revised lower its estimate of spending on goods.
The Commerce Department previously estimated outlays for healthcare added 1 percentage point to GDP. A quarterly services survey released this month showed the assumptions were too optimistic, according to Bloomberg. Outlays for health spending managed to actually subtract 0.16 percentage point from GDP, according to today’s report.
Residential investment - including spending on home construction, improvement and broker`s commissions - fell by a 4.2% pace in the first quarter , revised from the previous estimate of a 5% fall.
The housing market rebound, an important growth driver earlier in the recovery, was thwarted in late 2013and early 2014 by cold winter weather and rising mortgage rates.
The decline in first-quarter exports was revised to a 8.9% rate from 6% previously, a new indicator of a challenging global economic environment. The European economic recovery remains anemic, while growth in fast-growing emerging markets like China and Brazil has down shifted.
A big accumulation in private inventories had boosted economic growth at the end of 2013, but left a hangover in early 2014. Declining to remain with excess production, producers drew down inventories in the first quarter. The move subtracted 1.7 percentage points from growth , slightly more than the 1.6 previously estimated.
A measure that strips out changes in private inventories , final sales of domestic product , declined at a 1.3% pace in the first quarter, revised from an initial estimate of 0.6% growth.
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