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US Economy Shrunk in 1st Quarter, Economists Not Concerned About Recession

Published by: Ronnie on 29th May 2014 | View all blogs by Ronnie
US Economy Shrunk in 1st Quarter, Economists Not Concerned About Recession
The US Commerce Department reported Thursday that the world's largest economy shrunk in the first quarter, but the news didn't cause panic among economists, who predict that the downturn will prove to be temporary.  The report showed that US gross domestic product shrunk by a 1 percent annualized rate from the beginning of the year through March, marking the first contraction since the first quarter of 2011, when the economy shrunk at a 1.3 percent annual rate.  Economists attributed the poor performance to a decline in corporate investment, a larger trade deficit and a disappointing spring selling season for the housing market due top harsher than normal winter weather, particularly in the Northeast.  Economists expect a sharp recovery in the current quarter, however, as the nation moves forward from the extreme weather seen during the first quarter.
 
While the downturn illustrates just how far the US economy has to go, a number of recent reports have provided cause for economists to be optimistic despite the setback.  A separate report issued by the Labor Department on Thursday showed that initial applications for unemployment assistance dropped 27,000 last week to a seasonally adjusted 300,000.  That figure is just above the lowest number of claims we've seen in seven years.  At the same time,  the majority of the 1st quarter contraction was the result of a 1.6 percent slowdown in business stockpiling.  Consumer spending, which accounts for some 70 percent of the overall economy, actually grew at a 3.1 percent annual rate during the period.
 
The generally accepted definition of a recession is when GDP declines for two consecutive quarters.  Economists are not concerned that this contraction will go that far, expecting a sharp reversal between April and June.  On average, economists projected GDP growth of 3.8 percent in the current quarter, in fact, in a recent survey conducted by Bloomberg.  That optimism carries forward through the rest of the year as well, as those same economists predicted that GDP growth would stay above 3 percent in the third and final quarters of 2014.

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