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First-Quarter GDP Shrinks at Fastest Rate Since 2009

percentage-lowA revised estimate [1] of gross domestic product (GDP) in the first quarter shows the economy turning in its worst performance since 2009 as consumer spending disappointed and outgoing trade declined.

In its third and final estimate of first-quarter growth, the Department of Commerce recorded an annualized 2.9 percent decline in GDP throughout the year's first months. While analysts expected GDP growth to shrink further following the last estimate of a 1.0 percent decline, the reported number represents a sharper downturn than the 1.8 percent contraction that had been forecast.

The Commerce Department's Bureau of Economic Analysis [2] (BEA), which reports the numbers each quarter, said the third estimate reflects a smaller increase in consumer spending and a larger decline in exports than was previously estimated.

In the fourth quarter of 2013, real GDP growth came in at an annualized rate of 2.6 percent.

The quarterly slip came largely as a result of reduced inventory growth, said Doug Handler, chief U.S. economist for IHS Global Insight [3].

"The recession-like quarter was adversely affected by the weather and an unusually large drop in inventory growth, which is a correction from the last half of 2013," Handler said in an analytical note. "Neither of these factors persisted in the second quarter, and we expect to see a rebound in growth to the 3.5–4.0 percent range."

Paul Dales, senior U.S. economist for research firm Capital Economics [4], echoed that sentiment in his own outlook: "The latest data show that activity in the second quarter is rebounding. The monthly data for April suggest that Q2 consumption growth will be between 2.5 percent and 3.0 percent, that residential investment is rising, that net trade will be a smaller drag on growth and that inventories will add to, rather than subtract from, growth."