Commuters brave the frigid temperature as they cross the street on Capitol Hill, Jan. 7, 2014 in Washington, D.C.
Mark Wilson/Getty

The economy shrank for the first time in three years

The economy shrank last quarter for the first time in three years, according to newly revised figures from the Bureau of Economic Analysis. 

First quarter GDP slowed at an annual rate of -1.0% — worse than the initial estimate of 0.1% growth. It’s the first time since early 2011 that the economy has shrunk, mostly due to business inventories, construction and exports last quarter.

Consumer spending actually rose by 3.1%, bolstered by strong health-care spending.

“About half of this can be traced to additional health care spending related to the Affordable Care Act driving additional access to the health care system,” according to Doug Handler, chief U.S. economist for IHS Global Insight, who noted that “growth would have been much worse without the consumers’ contribution.”

Economists attribute most of the decline to the abnormally cold weather, and they anticipate that the economy will come back stronger than anticipated this quarter.

I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap-back (boing!) this quarter, where I have an above-consensus forecast for a 4.0% annualized rise in real GDP,” said PNC Chief Economist Stuart Hoffman.

“Despite the ugly headline, the details of the revision are actually favorable for second quarter GDP,” JPMorgan’s chief economist Michael Feroli concluded.

That’s because most of the downward revision is due to slower business inventory accumulation — a shift that will actually accelerate production this quarter “as businesses are operating with less of an inventory overhang,” according to Feroli’s research note.

Analysts also point out more encouraging signs of recovery. Jobless claims, for instance, dropped to 300,000 last week, the lowest level since August 2007, the Department of Labor said Thursday.

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The economy shrank for the first time in three years