THE US economy was battered even more than first suspected by the harsh winter, actually shrinking from January through March, marking the first retreat in three years, but economists are confident the downturn was temporary.
Gross domestic product contracted at an annual rate of one per cent in the first quarter, the Commerce Department said on Thursday.
That was worse than the government's initial estimate last month that GDP during the period grew by a slight 0.1 per cent.
The economy last posted a decline in the first three months of 2011 when it dropped 1.3 per cent.
This year's weakening reflected slower stockpiling by businesses, a cutback in business investment and a wider trade deficit.
Economists expect a robust rebound in the April-June quarter as the country shakes off the effects of a severe winter.
Dan Greenhaus, chief strategist at BTIG, called the drop in growth "backward looking".
"We knew that weather dramatically impacted growth in the first quarter and we fully expect a bounce back in the second quarter," he said in a note to clients.
Indeed, there are a number of recent signs pointing toward a strengthening economy.
The government released a separate report on Thursday that showed applications for unemployment benefits, a proxy for layoffs, fell by 27,000 last week to 300,000.
The result is nearly a seven-year low.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said that the big drop in unemployment benefit applications was more significant than the latest GDP figure because "it strongly supports the idea that the labour market conditions are improving markedly, despite the weak headline growth during the winter".
The report was the government's second look at first quarter GDP, the country's total output of goods and services.
The data primarily reflected a sharp slowdown in businesses stockpiling, which subtracted 1.6 percentage points from growth, a full percentage point more than the initial estimate.
The trade deficit was slightly larger than previously thought.
Business investment in structures fell at an annual rate of 7.5 per cent in the first quarter, also worse than the initial estimate.
The one per cent 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 had grown at an annual rate of 2.6 per cent.
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 belief among analysts is that the weakness in the first quarter was based on a variety of temporary factors that will be quickly reversed once the weather warms up.
Many economists estimate that GDP will post a sizeable rebound to growth of around 3.8 per cent in the current April-June quarter, fuelled by pent-up demand.
Analysts are also optimistic that growth will remain above three per cent in the second half of this year, giving the economy the kind of momentum that has been lacking for much of the first five years of recovery from the country's worst recession since the 1930s.
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