GDP report: U.S. economy shrank in the first quarter

WASHINGTON - U.S. economic growth in the first three months of the year was even weaker than initially estimated, slowed by harsh winter weather and a widening trade deficit.

The Commerce Department said Friday overall economy as measured by the gross domestic product shrank at an annual rate of 0.7 percent in the January-March period. That's down from 2.2 percent in the fourth quarter of 2014.

GDP is the broadest measure of U.S. economic strength, seeking to measure the total value of all goods and services produced in a calendar year.

The revised figure, even weaker than the government's initial estimate of a 0.2 percent growth rate, reflects a bigger trade gap and slower consumer spending. It marked the first decline since a 2.1 percent contraction in the first three months of 2014, a slump that was also blamed on winter weather.

The unusually high snowfall this winter reduced GDP in the first quarter by 0.8 percentage point, estimates Macroeconomic Advisers, which also points to a February work slowdown at ports along the West Coast as having depressed growth. Another headwind was the decline in crude oil prices, which hurt energy companies, while many forecasters think that seasonal distortions understated first-quarter growth.

"The record cold winter in the Northeast and the slump in the shale oil industry were the principal reasons why first-quarter GDP apparently shrank by 0.7 percent annualized, which was a worse outcome than the initial estimate of a 0.2 percent gain," said Paul Ashworth, chief U.S. economist with Capital Economics, in a note.

Of the 0.9 percent downward revision in first-quarter GDP, 0.4 percent came from businesses spending less on restocking their shelves; another 0.6 percent from a reduction in net exports.

Noting that economic output is typically weakest early in the year, forecasters expect a rebound in the current quarter to growth of around 2 percent and for the economy to strengthen later this year.

Stuart Hoffman, chief economist with PNC Financial Services Group, thinks that in the months ahead solid job gains and modest wage growth will help drive up consumer spending, which accounts for roughly two-thirds of economic activity. He also expects business investment to pick up and for the drag on the energy sector from lower oil prices to fade.

Still, the economy could struggle to match the pace of growth in 2014, when GDP grew 2.4 percent. The Federal Reserve expects growth of 2.5 percent this year.