U.s. Economy Shrinks in Q1, But Not As Much As Expected

U.S. real GDP declined by an annualized 0.7% in the first quarter of 2015. Still, the second reading was better than market expectations which called for a decline of 0.9%. While certainly disappointing, the contractionary second estimate of Q1 economic growth does not significantly alter our view of U.S. economic growth. The contraction was broadly anticipated with the revisions coming precisely where we anticipated them with some of it related to transitory factors during the quarter, notes TD EconomicsAt 1.8% annualized, the pace of spending by consumers disappointed as services spending appeared slower. Other than the anticipated downward revisions, the upward revisions to investment are an encouraging sign. Aside from nonresidential investment in structures which were plagued by a 50% annualized drop in mining exploration, shafts, and wells, business investment looks stronger than before, suggesting an increased confidence in the economy by U.S. firms. At the same time, residential investment was higher than expected on upward revisions to housing starts and home sales – both of which are pointing to a strong recovery in the second quarter and beyond.According to TD Economics, “Bottom line is that the economy contracted, but not as much as expected, with the details of the report proving to be somewhat encouraging. At this point, given the continued drag from oil and gas drilling activity and lower inventory investment we expect the second quarter growth to remain subdued, at about 1.5% to 2.0%. As these factors wane, the economy should get back on its more robust growth path, generating near-3% growth in the second half of 2015.”

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