The U.S. economy shrank in the first quarter for the first time in three years as it suffered more than first suspected from a severe winter, but there are signs the contraction was temporary, the government reported Thursday. The Commerce Department said the economy shrank at an annual rate of 1 percent in the January-March quarter, worse than the government's initial estimate last month that gross domestic product (GDP) grew at a tiny 0.1 percent annual rate. The economy grew at a 2.6 percent annual pace in the fourth quarter. It was the worst quarterly performance since early 2011 and only the second negative quarterly GDP reading since the current recovery started in mid-2009. The contraction reflected a much slower pace of inventory accumulation and a trade deficit that was larger than previously estimated. The drop in output, which also reflected a plunge in business spending on buildings, was sharper than the 0.5 percent decline expected by economists. Specifically, the first-quarter contraction primarily reflected a sharp slowdown in business inventories, which subtracted 1.6 percentage points from growth, or 1.0 percentage point more than the initial estimate. The trade deficit was slightly bigger than previously estimated, and business investment in buildings fell at an annual rate of 7.5 percent, also worse than the initial estimate. Economists believe severe winter weather could have subtracted as much as 1.5 percentage points from GDP growth, but the government provided no details on the impact of the weather. Data including employment and manufacturing suggest growth will accelerate sharply in the second quarter. Many economies believe that GDP will record a significant rebound to about 3.8 percent growth in the current April-June quarter and will remain above 3 percent in the second half of the year as the economy is helped by increased consumer demand driven by stronger hiring.
