US Economy Shrank 2.9%— Worst Since '09

Number much higher than expected
By Newser Editors and Wire Services
Posted Jun 25, 2014 8:15 AM CDT
A sign for Wall St. is shown outside the New York Stock Exchange, Monday, July 15, 2013 in New York.   (AP Photo/Mark Lennihan)

(Newser) – The US economy shrank at a staggering annual rate of 2.9% in the January-March quarter as a harsh winter contributed to the biggest contraction since the depths of the recession five years ago. The Commerce Department says the first-quarter contraction was even more severe than the 1% annual decline it estimated a month ago. It was the biggest downward revision since 1976, according to Bloomberg. Two-thirds of the drop was due to a decline in health care spending. Another major factor was a bigger trade deficit than initially estimated.

But despite the plunge last quarter, many analysts are optimistic that the dip will be temporary. They believe that the economy is expanding in the second quarter at a rate approaching 4%. "I do not think that the first-quarter GDP report is a reflection of the economy’s underlying health," one economist said. "The employment numbers have been pretty solid, we’ve seen early signs of growth in wages, and that is really what’s going to drive demand. That will bring the rest of the economy with it." (Read more GDP stories.)

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