GDP Contracts for First Time Since 2011

The measure is dragged down by bad winter weather and negative impacts from exports and imports.

The container ship MSC Michaela leaves New York Harbor on May 21, 2014, beneath the Verrazano-Narrows Bridge.

Negative contributions from exports hurt GDP.

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The U.S. economy contracted in the first three months of 2014 for the first time in three years by 1 percent, figures from the Commerce Department showed Thursday. A decrease was largely expected and likely reflects effects of the unusually harsh winter that slowed growth early in the year.

The figures fell below the expectations of Bloomberg-surveyed economists, who called for a downward revision of minus 0.5 percent after a previously reported increase of 0.1 percent. In the fourth quarter, real gross domestic product increased 2.6 percent.

The GDP reading was dragged down by negative contributions from exports and residential and nonresidential fixed investment and boosted by personal consumption expenditures.

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"This report underscores the setback to the recovery from the unseasonably cold winter weather in Q1," Millan Mulraine of New York-based TD Securities wrote in an email to clients after the report. "However, with economic momentum beginning to pick up, we are looking for a blockbuster Q2 growth performance, with GDP growth in excess of 4.0 percent."

Federal government spending and investment increased 0.7 percent, compared with a decrease of 12.8 percent in the fourth quarter.

Exports of goods and services declined 6 percent, compared with a rise of 9.5 percent in the fourth. Imports, which subtract in the calculation of the GDP, increased 0.7 percent.

The number of gross domestic purchases, or goods and services wherever produced bought by U.S. residents, increased 1.3 percent in the first three months of the year, compared with a rise of 1.5 percent the prior quarter.

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Recent employment data has been mixed. Weekly applications for unemployment plunged to 300,000 from a previous 327,000, Labor Department figures showed Thursday. The economy added 288,000 jobs in April and the unemployment rate fell to 6.3 percent, according to a recent Labor Department report, but the labor force participation rate fell to the lowest in 35 years.

The dip into the negative won’t necessarily be a sustained trend and likely will turnaround in the coming months, many economists such as Mulraine say. Federal Reserve Chair Janet Yellen voiced a similar optimism in a May 7 speech before the Congressional Joint Economic Committee.

“With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter,” she said. 



Clarified on May 29, 2014: The government spending and investment mentioned in this article is at the federal level.