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Roundup: U.S. economy shrinks in Q1 on severe weather

Xinhua, May 30, 2015 Adjust font size:

The severe wintry weather sent the U.S. economy into contraction in the first quarter, underlining the fact that the world's largest economy is not recovering on a solid footing. It adds complexity for the Federal Reserve to decide when to kick off the interest rate lift-off.

The gross domestic product (GDP) shrank at an annual rate of 0. 7 percent in the first quarter, marking the third quarterly contraction after the financial crisis ended in mid-2009, according to the second estimate from the U.S. Commerce Department released Friday.

The 0.7 percent contraction in the first quarter was a reversal of the initial 0.2 percent expansion for the period projected last month by the Commerce Department. The bitterly cold winter weather is blamed for pummeling personal consumption and private inventory investment, dragging down growth to the negative territory.

Exports were hard hit by tepid foreign demand and a stronger dollar. Consumers are saving the windfall from lower oil prices, weakening the key engine of the world's largest economy.

Personal consumption increased 1.8 percent in the first quarter, compared with an increase of 4.4 percent in the fourth quarter of 2014. Nonresidential fixed investment decreased 2.8 percent, in contrast to an increase of 4.7 percent in the previous quarter. Exports dived 7.6 percent, against an increase of 4.5 percent in the fourth quarter.

Jason Furman, chairman of the Council of Economic Advisers, said although national average gasoline prices have fallen more than 1 U.S. dollar per gallon, providing the equivalent of about a 700 U.S. dollars tax cut per household, families appear to have put most of those gains in the bank.

Personal saving rate has risen by 0.6 percentage point over the past four quarters. Just over the past quarter, the personal saving rate rose 0.8 percentage point -- an unusually large increase, according to a White House statement.

The Federal Reserve has been cautious in kicking off the interest rate lift-off as it fears an abrupt tightening could jeopardize the hard-earn recovery.

The U.S. economy shrank 0.7 percent in the second quarter of 2009 and contracted 2.1 percent in the first quarter of 2014, respectively.

Two consecutive quarterly contraction is seen as a symbol of recession. Most of the analysts expected the U.S. economy will rebound in the second quarter.

The Commerce Department will release the final estimate of the Q1 GDP on June 24. Endite