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POLITICS: PennAve

It's official: The economy shrank in the first quarter

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PennAve,Joseph Lawler,Economy,Federal Reserve,Janet Yellen,GDP

The economy shrank in the first quarter of the year, the Bureau of Economic Analysis reported Thursday.

Real gross domestic product contracted at an annual rate of 1 percent, the BEA reported in its second estimate of economic output for the quarter. Previously, it had estimated that the economy grew 0.1 percent.

The BEA will release a third and final estimate, but Thursday's negative number is unlikely to be revised away, meaning that 2014 is off to a disappointing start, given many top government officials' hopes that the year would bring the long-awaited acceleration in growth that has been elusive following the financial crisis. Growth had sped up through the end of 2013, with the fourth quarter growing at 2.6 percent and the third quarter at 4.1 percent.



The recovery, which officially began in the second half of 2009, has stalled out once before, when it contracted by 1.3 percent in the first quarter of 2011. Growth also slowed to just 0.1 percent in the fourth quarter of 2012.

Among other top officials, Federal Reserve Chairwoman Janet Yellen has blamed the "pause" in growth in the beginning of 2014 on "the unusually cold and snowy winter weather." In Senate testimony early in May, Yellen suggested that "with the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already underway, putting the overall economy on track for solid growth" -- including faster growth in 2014 than in 2013.

Most government and private-sector forecasters attribute the weak first quarter to poor weather, and continue to see the economy gaining momentum throughout the rest of the year.

Citing a reduction in drag from government spending cuts and improving household finances, Goldman Sachs economist Jan Hatzius wrote ahead of Thursday's report that "although the weak first quarter is likely to hold down real GDP for 2014 as a whole, the underlying trends in economic activity are still pointing to significant improvement."

The first-quarter downturn reflected decreases in exports, private inventory investments and business investment, the BEA said. Local and state spending also fell, although that decline was offset by an increase in federal outlays.

Gross domestic income, an alternative measure of the size of the economy based on income rather than spending, shrank even faster than GDP did, at a negative 2.3 percent clip. GDI had grown at 2.6 percent annually the previous quarter.

Total nominal GDP — that is, not adjusted for inflation — was $17.1 trillion in the first quarter.

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