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US economy shrinks 2.9% in first quarter of 2014

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The US economy shrank at a much faster pace in the first quarter of 2014 than previously estimated, marking its worst performances since 2009.

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, instead of the 1.0 percent rate it had reported last month.

Most economists had expected the revision to show the economy shrinking at a rate of only 1.7 percent. Given the sharp downgrade, growth this year could struggle to reach 2 percent.

“It’s a scary report. It sounds worrisome,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Most of the downward revision from the government’s previous estimate of a 1 percent annual decline reflected a change in the estimate of spending on healthcare. The government had previously estimated a strong gain in this category reflecting implantation of provisions of the Affordable Care Act.

The US economy was also held back by an unusually cold winter, the expiration of long-term jobless benefits and cuts to food stamps, which curbed consumer spending.

During the first quarter, growth in consumer spending, which accounts for more than two-thirds of US economic activity, was lowered to a 1.0 percent rate from a 3.1 percent pace.

Exports also fell at a 8.9-percent rate, the largest drop in five years, instead of a 6.0 percent pace. That resulted in a trade deficit that sliced off 1.53 percentage points from GDP growth.


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