WASHINGTON – The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled.
Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1 percent drop, the Commerce Department said Wednesday in Washington. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health care spending.
Consumers returned to stores and car dealerships, companies placed more orders for equipment and manufacturing picked up as temperatures warmed, indicating the early-year setback was temporary. Combined with more job gains, such data underscore the view of Federal Reserve policy makers that the economy is improving and in less need of monetary stimulus.
The first-quarter slump is “not really reflective of fundamentals,” said Sam Coffin, an economist at UBS Securities LLC in New York and the best forecaster of GDP in the last two years, according to data compiled by Bloomberg. “For the second quarter, we’ll see some weather rebound and a return to more normal activity after that long winter.”
Another report showed orders for business equipment climbed in May, showing corporate investment is helping revive the economy after the slump at the start of the year. Bookings for non-military capital goods excluding aircraft rose 0.7 percent after a 1.1 percent drop in April, according to the Commerce Department.
Demand for all durable goods - items meant to last at least three years - decreased 1 percent, reflecting declines in the volatile transportation and defense categories.
Stock-index futures declined after the figures, with the contract on the Standard & Poor’s 500 Index dropping 0.2 percent to 1,939.1 at 8:55 a.m. in New York.
Economists surveyed by Bloomberg projected a 1.8 percent drop in first-quarter GDP, according to the median of 76 forecasts. Estimates ranged from declines of 0.5 percent to 2.4 percent. The economy expanded at a 2.6 percent pace in the final three months of 2013.