The U.S. economy shrunk by 2.9% in the first quarter, far worse than the -1% revision reported May 29, and sounding an alarm among serious financial analysts who see it as a harbinger of recession even as politicos are downplaying the severe reversal.
The revised first-quarter contraction was the biggest decline since early 2009 when it hit -6.9%, and contrasts with the previous estimate of a 1% contraction.
Mainstream financial analysts and pundits predicted a 2.6% growth in the first quarter of 2014, making it a nearly 5% swing.
The gross domestic product has never fallen more than 1.5% except just before or during a recession since the government started tracking the GDP quarterly in 1947.
The downward revision is driven by personal consumption expenditures falling from 3.1% to just 1%, well below the 2.4% expected.
Pictured: Possibly a CNBC analyst
At this point, if all three quarters remaining this year see what looks like wildly optimistic growth of 3%, the best growth the economy can hope for is 1.5% for the year.
The housing market is officially stalling out, and it’s unclear whether the economy is a drag on housing or housing is a drag on the economy.
May’s big headline number for existing home sales, touted at a near 5% gain over April, is still down 5% from May 2013. Worse, most of the gains were in the $1 million-plus home bucket, which excludes the bulk of American homebuyers.
The same pundits touting the strength of the economy and the housing market at the start of 2014 are today downplaying these numbers, predicting a big snapback and recovery in the second and third quarters. Some, like Goldman Sachs, are even revising their second-quarter predictions, from 3.8% to 4%, based solely on optimism and a need to make their models work.
It will be interesting to see if – or rather, how badly – they’re wrong once again.