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GDP contracts 0.7% reinforcing weak start to 1Q

Economists remain optimistic

The economy contracted 0.7% in the first quarter of 2015, revealing the truth behind how tough the start of the year was for the market, according to the "second" estimate released by the Bureau of Economic Analysis Friday.

This number is compared to the economy’s final 2.2% growth in the fourth quarter of 2014.

The first-quarter GDP estimate came in at just 0.2%, showing the first signs that economic growth in the United States was grinding to a near halt.

With the second estimate for the first quarter, imports increased more and private inventory investment increased less than previously thought.

The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending.

However, these were partly offset by positive contributions from personal consumption expenditures, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

According to an article in The Wall Street Journal, this marks the third time since the recession ended in mid-2009 that the economy shrank during a quarter.

But don’t start throwing around the recession word just yet, the article cautioned.  

The first quarter featured several temporary setbacks, including harsh winter weather and a labor dispute that disrupted the flow of goods at West Coast ports. Recent data suggest a pickup in activity and continued steady hiring by employers in the second quarter. Most economists believe the economy is poised to rebound this spring and summer much as it did last year, when the economy contracted at a 2.1% pace in the first quarter but expanded 4.6% and 5% in the subsequent periods.

The articled noted that a recession is two straight quarters of contracting GDP. 

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