In June 2014, the Bureau of Economic Analysis released another estimate concerning real gross domestic product for the first three months of 2014. This estimate, the third and final estimate for this time period, reveals that the U.S. economy contracted more than was previously estimated.
The Bureau’s release reveals the output in the U.S. declining at an annual rate of 2.9%. This should be compared to a GDP growth of 2.6% that was seen in the fourth quarter of 2013.
According to Samantha Sharf of Forbes, “The 2.9% decrease in real GDP reflected the negative contribution from exports as well as declines in private inventory investment both residential and nonresidential fixed investment and lower local government spending.”
This final number is actually down from the Bureau’s negative 1% (second) estimate released last month. In addition, it varies even more sharply from the first estimate given by the Bureau which depicted the GDP growing 0.1%.
These numbers have revealed that this has been the economy’s worst quarter since the first quarter of 2009, which was at the very heart of the recession. What was behind these numbers? Economists are saying that it was the bad weather the country experienced in the early months of 2014.
According to PNC Senior Economist Gus Faucher, “The bad weather in much of the U.S. in early 2014 was a significant drag on the economy, disrupting production, construction, and shipments, and deterring home and auto sales.”
Thankfully, the data has shown a rebound in the second quarter accompanied by improvements in both auto and home sales. While major stock indices fell as the opening bell approached, the numbers quickly moved back up into the positive. This quick rebound would seem to indicate that investors saw this “hiccup” as temporary.
In truth, the general feeling is that the weather has covered up certain underlying trends of improvements. Stephen Auth, Chief Investment Officer at Federated Investors, for example, has called this revision “pretty incredible”. He has also predicted that GDP in the second quarter will see a growth of approximately 4% with accompanying and continual market gains.
In the meantime, the decrease of 2.9% will cause some concern, especially for small businesses; this decline indicates to them that economic growth is an issue, which will affect their profitability. In addition, banks may change their lending limits based on what the GDP figures predict. From a bank’s perspective, small businesses are considered “high-risk”.
According to 1st American Merchant Funding, “‘Cash-intensive’ businesses such as convenience stores, restaurants and retail outlets to professional corporations including lawyers, dentists and accountants are all deemed high risk by banks.”
Businesses and investors are now waiting for the Bureau of Economic Analysis to release its advance estimate for the second quarter GDP on the 30th of July. This estimate will reveal whether the weather really was just a temporary “hiccup” for the economy, or if this decline will continue.
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