WASHINGTON — The US economy contracted in the first quarter as it buckled under the weight of unusually heavy snowfalls and a resurgent dollar, but activity has rebounded modestly.
The government on Friday reduced its gross domestic product estimate to show it shrinking at an annual rate of 0.7% instead of the 0.2% growth pace it estimated last month. The third and final revised figure will be released in June.
A larger trade deficit and a smaller accumulation of inventories by businesses than previously thought accounted for much of the downward revision. There was also a modest downward revision to consumer spending.
With growth estimates so far for the second quarter around 2%, the economy appears poised for its worst first-half performance since 2011.
Economists, however, caution against reading too much into the slump in output. They argue the GDP figure for the first quarter was held down by a confluence of temporary factors, including a problem with the model the government uses to smooth the data for seasonal fluctuations.
Economists, including those at the San Francisco Federal Reserve Bank, have cast doubts on the accuracy of GDP estimates for the first quarter, which have tended to show weakness over the last several years.
They argued that the so-called seasonal adjustment does not fully strip out seasonal patterns, leaving "residual" seasonality. The government said last week that it was aware of the potential problem and was working to minimise it.
When measured from the income side, the economy expanded at a 1.4% rate in the first quarter.
A measure of domestic demand was revised up one-tenth of a percentage point to a 0.8% rate and business spending on equipment was much stronger than previously estimated, taking some edge off the slump in output.
Economists had expected GDP would be revised down to show it contracting at a 0.8% pace.
Apart from the statistical quirk, the economy, which expanded at a 2.2% pace in the fourth quarter, was hammered by labour disruptions at West Coast ports.
Also dragging on growth was a sharp decline in investment spending in the energy sector as companies such as Schlumberger and Halliburton responded to the plunge in crude oil prices.
Economists estimate unusually heavy snowfalls in February chopped at least one percentage point from growth.
Trade was hit both by the strong dollar and the ports dispute, which weighed on exports through the quarter and then unleashed a flood of imports in March after it was resolved.
The GDP report also showed after-tax corporate profits declined 8.7%. That was the largest drop in a year and the second quarterly fall, as the dollar weighed on multinational corporations and oil prices hurt domestic firms.