According to latest figures, the US economy suffered its worst performance for five years in Q1 2014.
The US economy shrank at an annualized rate of 2.9% in Q1 2014, the third estimate from the US Commerce Department showed.
This was worse than the previous estimate of a 1% contraction, and also worse than economists’ expectations.
However, the US economy is expected to have recorded a sharp recovery during the second quarter of the year.
The White House said the figures showed the economic recovery was still in progress, but added other indicators for April and May suggest a rebound in the second quarter.
The US economy shrank at an annualized rate of 2.9 percent in Q1 2014
The unusually cold weather in the first quarter of 2014 has been blamed for the poor performance of the economy.
However, the gap between the second and third estimates of US growth for the quarter was the largest on record.
The latest revision came as a result of a weaker pace of healthcare spending than previously assumed, which caused a downgrading of the consumer spending estimate.
Consumer spending – which is responsible for more than two-thirds of US economic growth – increased by 1% in the quarter, rather than the 3.1% rate as first estimated.
Trade was also a bigger drag on the economy than previously thought, with exports falling by 8.9% rather than a previously estimated 6%.
Q1 2014 figures are all the more startling as the economy grew by 2.6% in Q4 2013.
However, economists said more recent unemployment, manufacturing and service sector data all pointed to a sharp turnaround in the second quarter.
Analysts have forecast the economy could bounce back by as much as 4% in the second quarter.
Last week, the Federal Reserve cut its growth forecast for 2014 because of the harsh winter weather.
The Fed is now predicting growth of between 2.1% and 2.3% for this year, down from its March forecast of 2.8% to 3%.
However, in its accompanying statement, the central bank noted that economic activity had “rebounded in recent months”.
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US personal incomes were boosted by 2.6% in December, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise.
December 2012 was marked by accelerated bonus and dividend payments, the US Commerce Department said.
Income tax cuts dating back to George W. Bush’s presidency were due to expire in the New Year as part of the “fiscal cliff” of tax rises and spending cuts.
Despite the boost to incomes, consumer spending rose only 0.2% in the month.
“Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates,” the Commerce Department’s Bureau of Economic Analysis said.
In the event, the tax rises went ahead only for individuals earning more than $400,000, as part of a last-minute deal negotiated between Republicans and Democrats in Congress to avert the fiscal cliff, with the top tax rate rising from 35% to just under 40%.
Capital gains tax also rose on January 1, 2013.
US personal incomes were boosted by 2.6 percent in December 2012, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise
The 2.6% increase in incomes in December came on top of an unusually high 1% rise the month before.
Other factors also exaggerated the income increases in the two months, including lump-sum benefit payments handed out in December, and the loss of income for many in the New York area during October because of disruption from Storm Sandy.
Excluding all of these special factors, incomes rose 0.6% in November and just 0.4% in December – in line with the trend increase during the rest of the year.
Most of the windfall income was not spent, with the US personal savings rate increasing from 4.1% of income in November to 6.5% in December.
Indeed, the seasonally-adjusted growth in spending slowed noticeably in the run-up to Christmas, from 0.6% in November to 0.2% in December.
“Consumers finally realized about the tax increase so they pulled back a bit on their spending during the holiday season,” said Sam Bullard, senior economist at Wells Fargo.
Consumer spending is expected to remain weak in the New Year, owing to the impact of a rise in payroll taxes, also agreed as part of the fiscal cliff deal.
Personal incomes are also likely to experience a drag in January and over the coming months, reflecting the fact that most of the increase recorded in December was merely income that had been brought forwards.