Share “US economy set for rebound after Q1...”

US economy set for rebound after Q1 contraction

Published on NewsOK Modified: May 29, 2014 at 12:56 pm •  Published: May 29, 2014
Advertisement

The trade deficit was slightly larger than previously thought. Business investment in structures fell at an annual rate of 7.5 percent in the first quarter, also worse than the initial estimate.

The 1 percent decline in the first quarter was only the second negative quarterly GDP reading since the current recovery began in June 2009. In the fourth quarter, the overall economy grew at an annual rate of 2.6 percent.

While one definition of a recession is two consecutive quarters of contraction in GDP, there is no concern that a negative reading in the first quarter is a sign the economy is about to topple into a downturn. The widespread view among analysts is that the weakness in the first quarter was based on a variety of one-time factors that will be quickly reversed as the weather warms.

Many economists estimate that GDP will post a sizable rebound to growth of around 3.8 percent in the current April-June quarter, fueled by pent-up demand. Analysts are also optimistic that growth will remain above 3 percent in the second half of this year, giving the economy the kind of strength that has been lacking for much of the first five years of recovery from the country's worst recession since the 1930s.

If growth does pick up, that should promote stronger hiring and help drive the unemployment rate down further. In May, employers added 288,000 jobs in the biggest hiring surge in two years. That helped push the unemployment rate down to 6.3 percent, its lowest point since 2008.

The economy is facing fewer hurdles this year than last year, when government spending cuts and higher taxes trimmed growth by an estimated 1.5 percentage points.

A government budget truce has also lifted, at least through the rest of this year, much of the uncertainty that had been weighing on the economy over the potential threats of further government shutdowns or market-rattling battles over raising the government's borrowing limit.