The U.S. economy went into reverse in the first three months of this year as a severe winter and a widening trade deficit took a harsher toll than initially estimated.
The overall economy as measured by the gross domestic product contracted at an annual rate of 0.7% in the January-March period, the Commerce Department reported Friday.
The revised figure, even weaker than the government's initial estimate of a 0.2% growth rate, reflects a bigger trade gap and slower consumer spending. It marked the first decline since a 2.1% contraction in the first three months of 2014, a slump that was also blamed on winter weather.
Economists expect a rebound in the current quarter to growth of around 2% and expect the economy to strengthen later this year.
Much of the new-found weakness came from a widening trade deficit, reflecting weaker exports and a bigger jump in imports than first estimated. Trade subtracted 1.9 percentage points from growth, up from the 1.25-percentage-point drag initially estimated. American manufacturers are struggling with a stronger dollar, which hurts exports by making their goods more expensive on overseas markets and makes foreign goods cheaper for American consumers.
Consumer spending, which accounts for about 70% of economic activity, slowed to growth of just 1.8% in the first quarter, slightly below the 1.9% growth initially estimated. The government said consumers spent less on their cell phone services than first thought.
One of the biggest hits to the economy in the first quarter came from huge cutbacks in drilling activity by energy companies, a fallout from the big drop in oil prices over the past year. The government said that investment in the category that covers energy exploration plunged at a rate of 48.6%, the biggest drop since spring of 2009, when the country was still in recession.
Though falling GDP can be a sign of a recession, economists see little cause for concern with the first quarter drop. They are forecasting solid GDP growth the rest of the year, with steady job gains propelling the economy. A harsh winter is gone. So is a labour dispute that slowed trade at West Coast ports. Home sales and construction are rebounding. Business investment is picking up.
Many economists also suspect that the government's calculations have tended to underestimate growth in the first quarter of each year. The GDP has contracted in three quarters since the recession ended six years ago and all three declines came in the first quarter of the year.
