US economy contracts a steep 2.9%

The US economy shrank much more than previously estimated in the first quarter, in the sharpest contraction in five years, the Commerce Department said Wednesday.

Gross domestic product fell at a 2.9 percent annual pace in the first three months of the year, much worse than the previous estimate of 1.0 percent.

It was the steepest contraction since the 2009 first quarter, when GDP plunged 5.4 percent during the deep recession spawned by the 2008 financial crisis.

The Commerce Department said showed weaker growth in consumer spending, a larger increase in exports and higher imports than previous estimates.

The economy was hit by unusually severe winter weather in much of the country at the beginning of the year, after growth of 2.6 percent in the 2013 fourth quarter.

But the weak first quarter did not suggest that the US is slipping into recession, technically defined as two consecutive quarters of GDP contraction, as second-quarter data has shown the economy rebounding.

The Federal Reserve has shrugged off the weak first quarter as largely weather-related. In June the Fed cut, for the fifth time in a row, $10 billion from its economic stimulus program, bringing it to $35 billion a month.

Jim O'Sullivan, chief US economist at High Frequency Economics, called the first-quarter report "an outlier".

"If anything, labor market indicators and business surveys are suggesting a net pick-up in the trend so far this year. We expect at least partial payback with a strong 4.0 percent rate of growth in Q2," he said.

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