The U.S. economy contracted at a much steeper pace than previously estimated in the first quarter, but there are indications that growth has since rebounded strongly.

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the economy's worst performance in five years, instead of the 1.0 percent pace it had reported last month.

While the economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather. Growth has now been revised down by a total of 3.0 percentage points since the government's first estimate was published in April, which had the economy expanding at a 0.1 percent rate.

The difference between the second and third estimates was the largest on records going back to 1976, the Commerce Department said. Economists had expected growth to be revised to show it contracting at a 1.7 percent rate. Sharp revisions to GDP numbers are not unusual as the government does not have complete data when it makes its initial and preliminary estimates.

The latest revisions reflect a weaker pace of healthcare spending than previously assumed, which caused a downgrading of the consumer spending estimate. Trade was also a bigger drag on the economy than previously thought. The economy grew at a 2.6 percent pace in the final three months of 2013. With the first quarter in the rear view and the April-June period looking stronger, investors are likely to ignore the report.

Data such as employment, manufacturing and services sectors point to a sharp acceleration in growth early in the second quarter. However, the pace of expansion could fall short of expectations, which range as high as a 3.6 percent rate. Economists estimate severe weather could have slashed as much as 1.5 percentage points from GDP growth in the first quarter. The government, however, gave no details on the impact of the weather.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 1.0 percent rate. It was previously reported to have advanced at a 3.1 percent pace. Exports declined at a 8.9 percent rate, instead of 6.0 percent pace, resulting in a trade deficit that sliced off 1.53 percentage points from GDP growth. Weak export growth has been tied to frigid temperatures during the winter.

Businesses accumulated $45.9 billion worth of inventories, a bit less than the $49.0 billion estimated last month. Inventories subtracted 1.70 percentage points from first-quarter growth, but should be a boost to second-quarter growth.

A measure of domestic demand that strips out exports and inventories expanded at a 0.3 percent rate, rather than a 1.6 percent rate.

 Easy E wrote:
It is debatable if GDP even measures anything useful anymore.

 whembly wrote:

 Easy E wrote:
It is debatable if GDP even measures anything useful anymore.

It's a useful measure of how active the economy is... but, it's not necessarily a great measure of how healthy it is.

 agnosto wrote:
D, I'm sure that it has everything to do with Croatian farm subsidies and nothing at all to do with something so mundane as horrible weather completely shutting down the East coast for a month or so.

While the economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather.

Here are three key reasons why economists aren't too worried about another crisis.

1) They blame the weather: Consumer spending is the single largest driver of the U.S. economy, but blizzards kept customers away from restaurants, shopping malls, car lots and open houses more than usual this winter.

The icy winter also slowed shipments both domestically and abroad, and as a result, exports to foreign countries declined.

Since those slowdowns were weather-related, economists are convinced they're only temporary.

"The larger contraction in GDP in the first quarter is not a sign that the U.S. is suffering from a fundamental slowdown -- it was still largely due to the extreme weather," said Paul Dales, senior U.S. economist with Capital Economics.

But there's one caveat here: There was a sharp decline in health care spending at the beginning of the year, which economists aren't able to fully explain yet. Enrollment in health insurance is up due to the Affordable Care Act, but it looks like Americans spent more on health care in the fourth quarter, and then pulled back on that spending at the beginning of 2014.

There's a big question here: If more people have health insurance, why did spending on health care suddenly fall? There are no answers yet, and it may turn out to be a temporary blip, but it's something economists and policymakers will be watching.

2) It's not a final number: Some economists take this GDP number with a grain of salt because it will be revised again next month when the Bureau of Economic Analysis makes historical revisions, going back to 1999.

The weak number also doesn't fit with the story told by other key economic indicators, like job growth.

3) The economy has improved since March: Hiring slowed in December, but it has since picked up again. In the last five months, the economy added 1.1 million jobs. Hiring at that level is consistent with an economy that is growing modestly around 2% to 3% a year -- not an economy that is contracting.

"Disappointing data showing U.S. GDP suffered a steeper than previously thought downturn at the start of the year has been rapidly overtaken by more up-to-date survey data, which show the economy surging in June," said Chris Williamson, chief economist for Markit.

The same old story remains: This recovery is underway, but it's choppy and still very slow.

dereksatkinson wrote:
So it's the weather.. we will miraculously have a 6 sigma move in GDP revisions.. and the economy is going to get better because we have more waiters as of March..

 Polonius wrote:

dereksatkinson wrote:
So it's the weather.. we will miraculously have a 6 sigma move in GDP revisions.. and the economy is going to get better because we have more waiters as of March..

It was also a drop in health care spending, which is the opposite of what most people expected. So unless we're all going to keep putting off seeing the doctor, that probably won't last.

 whembly wrote:

 Polonius wrote:

dereksatkinson wrote:
So it's the weather.. we will miraculously have a 6 sigma move in GDP revisions.. and the economy is going to get better because we have more waiters as of March..

It was also a drop in health care spending, which is the opposite of what most people expected. So unless we're all going to keep putting off seeing the doctor, that probably won't last.

That's kinda misleading...

It isn't that visits to Doctor's office / Hospital is down... in fact, it's waaay up (YTD). It's partly because of the reduced reimbursements rates for services rendered across the board.

 Polonius wrote:

dereksatkinson wrote:
So it's the weather.. we will miraculously have a 6 sigma move in GDP revisions.. and the economy is going to get better because we have more waiters as of March..

It was also a drop in health care spending, which is the opposite of what most people expected. So unless we're all going to keep putting off seeing the doctor, that probably won't last.

 Polonius wrote:

 whembly wrote:

 Polonius wrote:

dereksatkinson wrote:
So it's the weather.. we will miraculously have a 6 sigma move in GDP revisions.. and the economy is going to get better because we have more waiters as of March..

It was also a drop in health care spending, which is the opposite of what most people expected. So unless we're all going to keep putting off seeing the doctor, that probably won't last.

That's kinda misleading...

It isn't that visits to Doctor's office / Hospital is down... in fact, it's waaay up (YTD). It's partly because of the reduced reimbursements rates for services rendered across the board.

citation?

 d-usa wrote:
The other indicators of economic health did not decline with the GDP, in fact they swung in the opposite direction and indicate a growing economy. Slowly growing, but still growing.

Winter 1985 was colder than winter 2014; #GDP expanded at 4% rate in Q1 1985- plunged 2.9% in Q1 2014. #GDP #Vortex pic.twitter.com/7gL2kPi8KS

— Stephen Moore (@StephenMoore) June 25, 2014

 d-usa wrote:
If the GDP is the only indicator of economic health you might be right in you doomsday predictions.

But like the post you seem to ignore the reason why people are not freaking out (well, other than you) is that:

A) we do have a pretty good explanation of why it happened. And

B) The other indicators of economic health did not decline with the GDP, in fact they swung in the opposite direction and indicate a growing economy. Slowly growing, but still growing.

 d-usa wrote:
http://money.cnn.com/2014/06/25/news/economy/gdp-negative/index.html?hpt=hp_t4

Here are three key reasons why economists aren't too worried about another crisis.
Since those slowdowns were weather-related, economists are convinced they're only temporary.

dereksatkinson wrote:


Considering all the spring/summer numbers are coming in relatively weak, it's clearly not "the weather" that is hitting the consumer. Most likely the initial numbers we will see for Q2 will come in a little higher than expected and will be revised lower into negative territory this September when final numbers are released. At which point we will be talking about the "surprise" recession.

 Kilkrazy wrote:
The blunt truth is that outside the elite 1 (or 2 or 5) %, the rest of the people are having a gakky time and it is coming round to bite "the economy" on its arse because they actually generate most of the demand and they are generating less of it.

dereksatkinson wrote:

Context matters

 MrDwhitey wrote:

dereksatkinson wrote:

Context matters

Indeed! Much like comparing Nixon to Obama.

Hilarious.