A report from the U.S. Department of Commerce reveals that the American economy not only shrank, but is at its lowest in five years.
During the January-March quarter the U.S. economy declined at a steep annual rate of 2.9 percent. However, the setback is believed to be temporary, with growth rebounding solidly since spring.
The first quarter downturn was worse than the 1 percent annual decline the agency had estimated a month ago. This is largely attributed to the winter season, which included harsh winter storms that shut factories, disrupted shipping and kept Americans away from shopping malls and auto dealerships. Aside from that, much of the downward revision reflected a drop in health care spending. Another factor was a bigger trade deficit than initially estimated.
Though usually such a sharp decline would typically generate fears of another recession, analysts see it as a short-lived. Economists say the economy is rebounding in the April-June quarter. Many expect growth to reach a robust annual rate of at least 3.5 percent this quarter.
Most analysts also foresee the economy expanding at a healthy rate of around 3 percent in the second half of this year.
Reports on consumer spending, manufacturing and business investment have shown a solid rebound this spring. Orders for big-ticket manufactured goods excluding military hardware and for core capital goods, a proxy for business investment, rose strongly in May, according to a report.
Last quarter’s 2.9 percent annual decline in economic activity, as measured by the gross domestic product, followed a 2.6 percent gain in the fourth quarter. It was the weakest showing since the economy shrank at a 5.4 percent annual rate in the first quarter of 2009 in the midst of the Great Recession.
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