U.S. Economy Shrinks Sharply, Durable Goods Orders Slip

Before you go, we thought you'd like these...
Durable Goods Orders
Scott Olson/Getty Images
By Lucia Mutikani

WASHINGTON -- The U.S. economy contracted at a much steeper pace than previously estimated in the first quarter to record its worst performance in five years, but there are indications that growth has since rebounded strongly.

The Commerce Department said Wednesday gross domestic product fell at a 2.9 percent annual rate, instead of the 1 percent pace it had reported last month.

While the economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revision suggests other factors at play beyond the weather.

Growth has now been lowered by a total of 3 percentage points since the government's first estimate was published in April, which had the economy expanding at a 0.1 percent rate.

The difference between the second and third estimates was the largest on records going back to 1976. Revisions to GDP numbers aren't unusual as the government does not have complete data when it makes its initial and preliminary estimates.

Economists had expected growth to be revised to show it contracting at a 1.7 percent rate.

U.S. stock index futures fell on the data, while prices for U.S. government debt rose. The dollar fell against a basket of currencies.

The latest revisions reflect a weaker pace of health care spending than previously assumed, which caused a downgrading of the consumer spending estimate. Trade was also a bigger drag on the economy than previously thought.

Economy Growing

The economy grew at a 2.6 percent pace in the final three months of 2013. Data on employment, manufacturing and services sectors point to a sharp acceleration in growth early in the second quarter.

However, the pace of expansion could fall short of expectations, which range as high as a 3.6 percent rate.

In a second report, the department said orders for long-lasting U.S. manufactured goods fell 1 percent last month.

Orders for these items, which range from toasters to aircraft that are meant to last three years or more, fell for the first time in three months.

%VIRTUAL-article-sponsoredlinks%They were dragged down by weak demand for transportation, machinery, computers and electronic products; electrical equipment, appliances and components; as well as a 31.4 percent plunge in defense capital goods orders.

Economists estimate severe weather could have slashed as much as 1.5 percentage points from GDP growth in the first quarter. The government, however, gave no details on the impact of the weather.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 1 percent rate. It was previously reported to have advanced at a 3.1 percent pace.

Exports declined at a 8.9 percent rate, instead of a 6 percent pace, resulting in a trade deficit that sliced off 1.53 percentage points from GDP growth. Weak export growth has been tied to frigid temperatures during the winter.

Other drags to first-quarter growth included a slow pace of restocking by businesses, a sharp drop in investment on non-residential structures such as gas drilling and weak government spending on defense.

Businesses accumulated $45.9 billion worth of inventories, a bit less than the $49 billion estimated last month. Inventories subtracted 1.7 percentage points from first-quarter growth, but should be a boost to second-quarter growth.

A measure of domestic demand that strips out exports and inventories expanded at a 0.3 percent rate, rather than a 1.6 percent rate.

U.S. Economy Shrinks Sharply, Durable Goods Orders Slip
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.
 

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION
Read Full Story

People are Reading