WASHINGTON: The US economic slowdown was less severe than previously estimated, a senior White House official said on Wednesday.

This development puts the US economy on a trajectory for stronger growth later in 2015. In May, the US Commerce Department estimated that the economy would contract by 0.7 per cent.

Gross domestic product, the broadest sum of goods and services produced across the economy, contracted at a 0.2pc seasonally adjusted annual rate in the first quarter, the US Commerce Department said Wednesday.

The agency previously estimated output fell 0.7pc from January through March.

Jason Furman, chairman of the Council of Economic Advisers, told reporters that the real GDP for the first quarter was revised up on Wednesday, “reflecting slightly higher growth in personal consumption, private investment, and government expenditures than previously estimated.”

The small first-quarter decline in overall GDP was driven by a number of factors including harsh winter weather and tepid foreign demand. However, the combination of consumption and investment — the most stable and persistent components of output — continued to rise at a robust year-over-year pace.

“This solid trend matches the strong pace of job growth and employment reduction observed over the last year,” Mr Furman said.

He said the Obama administration was working to build on these underlying trends by opening US exports to new markets with high-standards free trade agreements, boosting investment in infrastructure, and avoiding harmful budget cuts like the sequester.

Earlier Wednesday, the US Bureau of Economic Analysis released its third estimate for the current fiscal year, noting that real GDP edged down 0.2pc at an annual rate in the first quarter of 2015.

This report reflects an upward revision of 0.5 percentage point to overall GDP growth. The slower first quarter follows a solid increase of 3.6pc at an annual rate during the second half of 2014.

Over the past four quarters, GDP rose 2.9pc. The report said the first-quarter growth was likely affected by a number of transitory factors including unusually severe weather, the West Coast ports dispute, and various measurement issues.

A decline in net exports was another important contributor to weak GDP growth.

Indeed, net exports subtracted nearly 2 full percentage points from quarterly GDP growth. Furthermore, structures investment subtracted about 0.6 percentage point from GDP, reflecting reduced oil drilling in the wake of last year’s decline in oil prices.

Despite the decrease in GDP, real gross domestic income — an alternate measure of economic output — increased 1.9pc at an annual rate in the first quarter. Real private domestic final purchases (PDFP), the sum of consumption and fixed investment, rose 1.6pc at an annual rate in the first quarter, faster than overall GDP but below last year’s pace. Real PDFP — which excludes noisy components like net exports, inventories, and government spending — is generally a more reliable measure of future GDP growth than current GDP.

Over the past four quarters, PDFP grew 3.5pc, a faster rate than overall GDP.

The upward revision to first-quarter GDP was spread across many components of economic output. Personal consumption expenditures contributed 0.2 percentage point to the upward revision with improvements in estimates of both goods and services consumption.

Private investment contributed another 0.3 percentage point with a mix of small upward revisions to structures investment, intellectual property investment, inventories, and residential investment.

State and local government investment contributed the remaining 0.1 percentage point to the upward revision. Exports and imports saw offsetting revisions, leaving net exports essentially unrevised on balance.

Published in Dawn, June 25th, 2015

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