WASHINGTON -- A drop in government spending dragged more on the U.S. economy than initially thought in the first three months of the year, a sign of increasing pain from Washington's austerity drive.
The U.S. economy expanded at a 2.4 percent annual rate during the period, down a tenth of a point from an initial estimate, according to revised figures from the Commerce Department released Thursday. Analysts had forecast a 2.5 percent gain.
Growth was held back as government spending fell across all levels of government and as businesses outside the farm sector stocked their shelves at a slower pace.
Washington has been tightening its belt for several years but ramped up austerity measures in 2013, hiking taxes in January and slashing the federal budget in March.
Still, economic growth has been surprisingly resilient, supported by the Federal Reserve's low interest rate policies. Most economists expect growth will slow mid-year as budget cuts come into effect.
Government spending fell even more sharply in the fourth quarter, and economists speculate that government agencies pulled back in anticipation of budget cuts initially due to begin in January but which took effect in March.
In the first quarter, government spending dropped at a 4.9 percent annual rate, faster than the 4.1 percent rate initially estimated. Spending fell at federal, state and local government offices, though the majority of the downward revision in Thursday's report came at the county and city level.
The drag from government and inventories was partially offset by an upward revision to consumer spending, which rose at a 3.4 percent annual rate, up two tenths of a point from the government's previous estimate.
However, a cloud hung over that category, as most of the upward revision was due to higher sales of gasoline. Higher prices at the pump are a burden on consumers, leaving them less money to spend on other things. Consumer spending accounts for more than two-thirds of U.S. economic activity.
After-tax corporate profits fell at a 1.9 percent annual rate in the quarter, the first decline in a year.
Total imports grew at a slower pace in the first quarter than initially estimated, moderating the drag on growth from net trade.
Excluding the volatile inventories component, GDP rose at an upwardly revised 1.8 percent rate, slightly higher than analysts had forecast.
9 Numbers That'll Tell You How the Economy's Really Doing
U.S. First-Quarter GDP Revised Slightly Lower
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.