US econ­omy not as bad in 1st quar­ter, paving way for re­bound


The U.S. econ­omy con­tracted in the first three months of the year, just not as much as pre­vi­ously es­ti­mated. More re­cent data show that the weak­ness was largely tem­po­rary, with a re­bound in the works for the April-June quar­ter.

The econ­omy, as mea­sured by the gross do­mes­tic prod­uct, shrank at a sea­son­ally ad­justed an­nual rate of 0.2 per­cent from Jan­uary through March, the Com­merce Depart­ment said Wed­nes­day. That’s bet­ter than last month’s es­ti­mate of a 0.7 per­cent de­crease.

Harsh win­ter weather slowed spend­ing by keep­ing con­sumers away from shop­ping malls and auto deal­er­ships. The trade deficit bal­looned, slic­ing growth by the most since 1985 as ex­ports fell and im­ports rose.

Yet con­sumers stepped up their spend­ing in May, and home sales are climb­ing — signs that the econ­omy is back on track. In ad­di­tion, many of the head­winds the econ­omy faced in the first quar­ter — from an in­crease in the dol­lar’s value to spend­ing cut­backs by oil drillers — are fad­ing.

Ex­ports were ham­mered by a sharp rise in the dol­lar’s value, which makes U.S. goods more ex­pen­sive over­seas. The dol­lar has in­creased 15 per­cent in the past year com­pared with a bas­ket of over­seas cur­ren­cies.

That also makes im­ports cheaper and bet­ter able to com­pete with U.S.-made goods. Im­ports in­creased 7.1 per­cent in the first quar­ter, while ex­ports fell 5.9 per­cent. That widened the trade gap, cut­ting nearly 1.9 per­cent­age points from growth, the most in 30 years.

A trade dis­pute at West Coast ports also con­trib­uted to the dis­par­ity, but it has since been re­solved. And the dol­lar’s value has lev­eled off since March, sug­gest­ing its im­pact will lessen.

Oil and gas com­pa­nies, mean­while, sharply cut back on drilling and ex­plo­ration ac­tiv­ity and spent much less on steel pipe and other equip­ment. Busi­ness in­vest­ment in struc­tures, which in­clude oil wells, dropped by nearly 19 per­cent, the most in four years. Those cut­backs oc­curred in the wake of last year’s steep drop in oil prices, but have since slowed and should stop low­er­ing growth in the sec­ond half of the year, an­a­lysts forecast.

Amer­i­cans Saved More

Amer­i­cans saved more in the first quar­ter, aided by lower gas prices and greater hir­ing. The sav­ing rate rose to 5.4 per­cent from 4.7 per­cent in the fourth quar­ter, the high­est in more than two years. Con­sumer spend­ing growth slipped to just 2.1 per­cent, down from 4.4 per­cent in the fi­nal three months of last year.

But since then, there have been signs that Amer­i­cans are open­ing their wal­lets again. That should pro­vide a cru­cial boost to growth in the sec­ond quar­ter and the rest of the year. Con­sumer spend­ing ac­counts for 70 per­cent of eco­nomic ac­tiv­ity.

Sales at re­tail stores and restau­rants jumped 1.2 per­cent in May, as shop­pers spent more on clothes, build­ing ma­te­ri­als and fur­ni­ture.

Con­sumers are also will­ing to spend more on ma­jor pur­chases, po­ten­tially a sign of grow­ing con­fi­dence in what has been a stopand-start ex­pan­sion. Auto sales jumped in May to the high­est level in nearly a decade.

And the big­gest pur­chase of all — a home — is be­com­ing re­al­ity for more peo­ple. Sales of ex­ist­ing homes jumped 5.1 per­cent in May and are on track for their best year since 2007. New home sales also rose last month, reach­ing their high­est level since Fe­bru­ary 2008.

Growth should reach 2.6 per­cent in the sec­ond quar­ter, ac­cord­ing to fore­cast­ing firm Macroe­co­nomics Ad­vis­ers. That would still leave growth in the first half at a weak 1.2 per­cent an­nual rate. But many econ­o­mists ex­pect fur­ther im­prove­ment in the sec­ond half of the year to 3 per­cent.

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