US economy contracts after unusually heavy snow

The US economy contracted in the first quarter as it buckled under the weight of unusually heavy snowfalls and a resurgent dollar, but activity has rebounded modestly.

The government yesterday slashed its GDP estimate to show it shrinking at a 0.7% annual rate instead of the 0.2% growth pace it estimated last month.

A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.

With growth estimates for the second quarter around 2%, the economy appears poised for its worst first-half performance since 2011.

Economists, however, caution against reading too much into the slump in output. They argue the GDP figure for the first quarter was held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations.

When measured from the income side, the economy expanded at a 1.4% rate in the first quarter.

Unlike 2014, when growth snapped back quickly after a dismal first quarter, the dollar and investment cuts by energy companies continue to hamstring activity.

But growth could accelerate as the year progresses.


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