Hard winter blamed for US decline

THE US economy shrank at a steep annual rate of 2.9 per cent in the January-March quarter as a harsh winter contributed to the biggest contraction since the depths of the recession five years ago. But the setback is widely thought to be temporary, with growth rebounding solidly.

The first-quarter contraction reported by the government was even more severe than the 1 per cent annual decline it had estimated a month ago. Two-thirds of the downward revision reflected an unexpectedly sharp drop in healthcare spending.

The harsh winter is thought to have caused some people to delay elective surgeries and doctor visits. But analysts predicted that healthcare spending would rebound as people who have gained health insurance begin using their coverage.

Another factor was a higher trade deficit than expected.

Though such a sharp economic decline would typically stoke fears of another recession, analysts see it as a short-lived result of winter storms that shut factories, disrupted shipping and kept Americans away from shopping malls and car dealerships.

Many expect growth to reach a robust annual rate of 3.5 per cent or better this quarter.

‘‘Despite the awful start to the year, the US economy is nowhere close to a recession,’’ said Sal Guatieri, senior economist at BMO Capital Markets.

Guatieri thinks growth is rebounding to a 3.8 per cent annual rate in the current quarter and will average a solid 3 per cent rate in the second half of the year.

Other analysts noted that several likely temporary factors slowed the economy in the last quarter – from businesses reducing their pace of restocking to companies paring their purchases of equipment. Also, a wider trade deficit cut 1.5 percentage points from growth. Housing construction slumped.

Those negative forces would likely turn positive this quarter, analysts said. The economy is getting a lift from an improving job market, which has added more than 200,000 jobs each month over the past four months.

Stock investors appeared unfazed by the plunge in economic activity last quarter. The Dow Jones industrial average was up about 30 points in late-afternoon trading.

Most analysts expect the economy to keep expanding at a healthy annual rate of about 3 per cent in the second half of this year.