The economy had its worst performance since the Great Recession in the first three months of the year, contracting at an annual rate of 2.9 percent, as severe weather took a heavier toll than initially thought, the Commerce Department said Wednesday.
The contraction in total economic output in the first quarter was a huge downgrade from an earlier estimate that so-called gross domestic product shrank at a 1 percent annual rate in the January-March period.
The figure – the third and final revision of first-quarter data – was much worse than the 1.8 percent annualized contraction economists had forecast.
Growth has shown signs of rebounding strongly, as the weather improved and pent-up demand was released. Economists are forecasting the economy will expand at about a 3.5 percent annual rate in the second quarter.
But the horrible start to 2014 will drag down the year’s overall economic output.
Last week, the International Monetary Fund reduced its estimate for U.S. growth this year to a modest 2 percent, from an April projection of 2.8 percent.
The first-quarter contraction was the worst since the economy shrank at a 5.4 percent annual rate in the first quarter of 2009, near the depths of the Great Recession.
The economy has contracted only one other time – by an annualized rate of 1.3 percent in the first quarter of 2011 – since the recession ended five years ago. A recession generally is defined as two straight quarters of negative growth.
Economists knew the recovery stumbled in the first quarter of this year, as heavy snow and bitter cold in much of the nation closed many businesses.
The new data showed things were worse than anticipated.
Consumer spending rose just 1 percent in the first quarter, down sharply from last month’s estimate of 3.1 percent. It was the smallest gain in consumer spending since the fourth quarter of 2009, the Commerce Department said.
Consumer spending accounts for more than two-thirds of total economic activity. It had been up 3.3 percent in the fourth quarter of last year, when the economy grew at a 2.6 percent annual rate.
In addition, U.S. exports plummeted 8.9 percent in the first quarter, down from last month’s estimate of a 6 percent drop.
Exports hadn’t fallen by that much since the first quarter of 2009. They had risen 9.5 percent in the fourth quarter of last year.