The US economic recovery was far weaker in the first quarter of the year than first thought, the Commerce Department said on Wednesday. The nation’s gross domestic product (GDP), the broadest measure of all goods and services produced in the economy, grew at a 1.8% annual rate from January through March. The figure was revised down from 2.4% as consumer spending and business investment were revised sharply downward.
The economy has grown for 15 consecutive quarters, but the pace of those gains – about 2% – is among the weakest for recoveries since the second world war. In the fourth quarter of 2012, economic output expanded by only 0.4%. Personal consumption expenditures – the key measure of consumer spending – was revised down to 2.6% from 3.4%. Spending on foreign travel, legal services, personal care and healthcare, especially dental and home healthcare, were weaker than previously estimated, the Commerce Department said. The Commerce Department revised growth in private investment to 7.4% in the first quarter, down from an original estimate of 12.3%.
This was the third revision to the first quarter’s GDP figures. Dan Greenhaus, chief global strategist at BTIG, said it was unusual for the third estimate to deviate so dramatically from the second estimate. “Clearly growth in the first quarter was much weaker than previously thought,” he wrote in a note to investors.
“Another area of meaningful weakness is imports; imports were originally reported as growing by 5.4% but now show a contraction of 0.4%. There is one area of positivity though; residential investment expanded at a more rapid pace that originally thought. So housing continues to be an important boost to growth when several other categories are weighing on the economy.”
The deepest recession since the Great Depression officially ended in June 2009. But growth has averaged about 2% annually, among the weakest for recoveries since the second world war.
Last week the Federal Reserve chairman, Ben Bernanke, triggered a global sell-off on the stock markets when he gave the clearest indication yet that he intends to cut back on the Fed’s $85bn-a-month stimulus programme. The sell-off came even as Bernanke cautioned that while there were clear signs of recovery in the economy, he would not cut back the so-called quantitative easing programme if they worsened.
One factor holding back the economy, according to Bernanke, is tightening fiscal policy. The Fed said last week that massive government spending cuts – known as sequestration – now being implemented are “restraining economic growth” and are expected to take their toll on the second quarter’s GDP. Spending cuts are expected to be $85bn this year and grow to $109bn in 2014, according to a recent report from Goldman Sachs. Macroeconomic Advisers, an economic research firm, is predicting a 1.4% growth rate for the second quarter.
The Fed said last week that it predicted the economy to grow at a rate of 2.3% to 2.6% in 2013 and to top 3% in 2014.