Search foxnews.

com

LOGIN
MENU
Published June 25, 2014
FoxNews.com
1625 383 3646
U.S. Home Crime Terrorism Economy Immigration Disasters Military Education Environment Personal Freedoms Regions
EC ONOM Y
Economy in freefall? 1Q revision shows shrinkage of 2.9%
America's economy shrank at a drastic 2.9 percent annual rate in the first quarter, a far more alarming picture than ones
painted in two previous government estimates -- including one that actually claimed modest growth.
The new figure released Wednesday by the Commerce Department is nearly three times lower than last month's preliminary
estimate of 1 percent shrinkage -- at the time the worst three-month performance since 2009 -- and far greater than the 0.1
percent growth estimate in April. The sluggish economy's woes have been widely attributed to an unusually cold winter, but the
latest figure -- the biggest difference between second and third estimates since 1976 -- could indicate far greater problems.
While economists attributed those bad numbers to weather and other factors, the jarring number, dubbed "an absolute disaster"
by Wall Street blog ZeroHedge.com - is more difficult to dismiss.
Fox New contributor and economist Peter Morici said there were several factors that can help explain away the lousy
- BREAKI NG NEWS -
HOUSE SPEAKER JOHN BOEHNER TO FILE LAWSUIT AGAINST OBAMA OVER ALLEGED ABUSE OF EXECUTIVE POWER
Subscribe to Alerts
performance. But he said there are reasons for concern.
"Businesses scaled back their investment, and that is a bit foreboding," said Morici. "They just don't believe the president's
ballyhoo about this being a breakout year."
The number will be revised once more next month, when the Commerce Department's Bureau of Economic Analysis makes
historical revisions. But the negative 2.9 percent figure is nearly three times lower than the preliminary estimate of 1 percent
released last month, and marks the worst performance for a three-month period since 2009. A still earlier initial estimate, in
April, predicted growth of .1 percent for the quarter. The wide gap between estimates was problematic to many economists.
"That disparity really calls into question the accuracy of the measurement," noted Morici.
The White House sought to downplay the precipitous drop, by looking ahead toward what it believes will be solid growth in the
current quarter.
"First-quarter GDP was revised down today, largely reflecting a re-estimation of consumer spending on health care, which was
substantially lower than originally reported, as well as exports, which were below the initial estimates," said Jason Furman,
chairman of the Council of Economic Advisers, which counsels President Obama on the economy. "The GDP data can be
volatile from quarter to quarter; a range of other data show a more positive picture for the first quarter, and more up-to-date
indicators from April and May suggest that the economy is on track for a rebound in the second quarter."
But Republicans blamed Obama policies for holding up the economy.
Its clear the White House doesnt know which way is up, just two months ago bragging that ObamaCare was helping the
economy and now were seeing the worst economic report since the low point of the recession in 2009," said RNC Chairman
Reince Priebus. "The Republican House has sent Harry Reid and Democrats in the Senate dozens of bills to help jump-start
our economy and its time they stop standing in the way.
The economy grew at a 2.6 percent pace in the final three months of 2013, and some economists are optimistic that the poor
performance in January, February and March was a mere blip. Data such as employment, manufacturing and services sectors
point to a sharp acceleration in growth early in the second quarter. Macroeconomic Advisers recently forecast the economy
will grow at a 3.6 percent annual rate in the April to June period, according to The Wall Street Journal.
Economists have previously estimated severe weather slashed as much as 1.5 percentage points from GDP growth in the first
quarter, but even taking that into account would still leave a precipitous drop in performance.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 1 percent rate. It was
previously reported to have advanced at a 3.1 percent pace. Exports declined at a 8.9 percent rate, instead of 6 percent pace,
resulting in a trade deficit that sliced off 1.53 percentage points from GDP growth. Weak export growth has been tied to frigid
temperatures during the winter.
Businesses accumulated $45.9 billion worth of inventories, a bit less than the $49 billion estimated last month. Inventories
subtracted 1.70 percentage points from first-quarter growth, but should be a boost to second-quarter growth.
Depsite the gloomy news, the Dow Jones Industrial Average rose modestly in morning trading.


Comments
click here to join the discussion