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US economy contracts in first quarter

May 29, 2014

It was a grueling winter in the United States and the severe conditions took a larger toll on the economy than originally forecast.

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An automobile factory in the US
Image: picture-alliance/dpa

The US economy took an unexpected hit in the first quarter due to the harsh winter, with GDP dropping by one percent at an annual rate. That's according to Commerce Department figures which were worse than the government's initial forecast last month.

In that estimate, the economy was thought to have actually grown, but only a weak rate of 0.1 percent. The decline reported by the Commerce Department is also worse than the .05 drop in output expected by analysts on Wall Street.

Worst drop since 2011

The decline was the worst performance since the first quarter of 2011. It reflected slower pace of inventory growth and a trade deficit which grew faster than expected.

Economists believe the contraction is temporary though, and will rebound to about 3.8 percent growth in the second quarter as the nation rebounds from the severe winter weather.

They expect GDP growth to be above 3 percent for the second half of the year, as hiring increases and consumer spending jumps along with it. In a separate report, the Labor Department said first time applications for unemployment payments dropped by 27,000

Kpc/ (AP. Reuters)