Date
17 December 2017
Inventory adjustments accounted for almost all of the revision in US economic growth in the first quarter. Photo: Bloomberg
Inventory adjustments accounted for almost all of the revision in US economic growth in the first quarter. Photo: Bloomberg

Analysts: Not to worry as US economy shrinks in first quarter

The United States saw its economy contract 1 percent year on year in the first quarter, worse than expected, but things are not as bad as it looks.

The figure is down from a 0.1 percent growth estimate by the Bureau of Economic Analysis, the Financial Times reported Thursday.

While the initial weakness was due to bad weather, the revision was almost entirely falling inventories, it said.

Most economics expect growth to pick up to about 3 percent the rest of the year. There is no evidence the bad weather has continued into the second quarter or that inventories are still falling.

Inventory adjustments knocked 1.6 percentage points from the economy, accounting for almost all of the downward revision. Small downward revisions to net trade and government spending accounted for the rest.

Paul Ashworth at Capital Economics in Toronto said the decline was “nothing to worry about”.

“For a start, the downward revision is almost entirely because inventories were a much bigger drag on growth than previously thought,” he said. “But that bigger first-quarter drag means that we are likely to see a bigger bounce back in the second quarter.”

The first quarter was marked by freezing weather across the Midwestern US, which closed shops, factories and construction sites. In gross domestic product, that showed up as falling exports and investment, which left growth close to zero, the report said.

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