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U.S. Preliminary GDP Falls 0.7% In First Quarter

Editor's Note:The article was updated to include more information from the report and comments from CIBC. The article was updated a second time to include comments from Capital Economics

(Kitco News) - The U.S. economy shrank as expected during the first three months of the year, according to the second estimate the nation’s gross domestic product (GDP).

Friday, the Bureau of Economic Analysis reported that the U.S. economy contracted in the first quarter of 2015, showing a negative 0.7% reading. The advance estimate pegged the nation’s economic growth at 0.2%.

"The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment," the report said.

Economists were bracing for a negative print with consensus forecasts calling for a negative 1.0% reading. According to some reports, economists were expecting a weak print because of harsh winter conditions at the start of the year and a widening trade deficit to have been the biggest impact on the country’s growth; imports are negative in GDP calculations.

Inflation pressures declined significantly in the first quarter, dropping 1.6% in the second estimate, down from a 0.1% decline reported in the advance report.

Excluding volatile food and energy prices, inflation pressures in the first quarter rose 0.2%, down from 0.7% reported in the previous release.

Looking at some of the components of the preliminary report, personal consumption expenditures increased 1.8% in the first quarter, down slightly from the previous advance increase of 1.9%. Durable goods increased 1.1%, unchanged from the previous reading.

Exports of goods and services fell 7.6%, down from the advance reading of 7.2%; at the same time real imports increased 5.6% in the first quarter, up sharply from the advance reading of 1.8%.

Andrew Grantham, senior economist at CIBC World Markets, said there were no major surprises in the preliminary report, calling it a “rerun” of last year.

“As expected, the bulk of the revision came from net trade, which is now subtracting 1.9%-pts from growth,” he said.

Paul Ashworth, chief U.S. economist at Capital Economics, said dismissed the first quarter data as seasonal weakness and is now looking to second quarter growth, expecting to see a strong rebound from the current contraction.

"Accordingly, we still expect second-quarter GDP growth to be between 2.5% and 3.0%. More generally, while the evidence of a second-quarter rebound hasn't been overwhelming, we still think that the outlook for the economy is very encouraging," he said.

By Neils Christensen of Kitco News;
Follow Neils Christensen @neils_C

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