US Economy Shrinks Amid Slump In Output

The US economy contracted in the first quarter as it buckled under the weight of unusually heavy snowfalls and a resurgent dollar.

The government slashed its gross domestic product estimate to show GDP shrinking at a 0.7% annual rate instead of the 0.2% growth pace it estimated last month.

A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision.

There was also a modest downward revision to consumer spending.

With growth estimates so far for the second quarter around 2%, the economy appears poised for its worst first-half performance since 2011.

Economists, however, caution against reading too much into the slump in output.

They argue the GDP figure for the first quarter was held down by a confluence of temporary factors.

These include a problem with the model the government uses to smooth the data for seasonal fluctuations.

Economists have cast doubts on the accuracy of GDP estimates for the first quarter, which have tended to show weakness over the last several years.

They argued the so-called seasonal adjustment is not fully stripping out seasonal patterns, leaving "residual" seasonality.

The government said last week it was aware of the potential problem and was working to minimize it.

"Survey evidence is already pointing to a second-quarter pick-up. The extent of the decline in the first quarter is therefore of little concern," said Chris Williamson, chief economist at Markit in London.

When measured from the income side, the economy expanded at a 1.4% rate in the first quarter.