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% from January through March, the Commerce Department announced this morning. That’s better than last month’s estimate of a 0.7% 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.
“Growth should remain near 3% in the second half of the year as the dampening effects of a strong dollar and oil industry slump fade,” Sal Guatieri, an economist at BMO Capital Markets, says in a note to clients.
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% in the past year compared with a basket of overseas currencies.
The Associated Press has the full story.
