US first quarter GDP falls less than expected

The US economy contracted by less than was feared at the start of 2015, although economists overwhelmingly expected growth to recover throughout the rest of 2015.

Indeed, in both 2011 and 2014 gross domestic product shrank in the first quarter only to then recover over the course of the year. However, the latest estimate from the Federal Reserve Bank of Atlanta's GDPNow model, for annualised growth of just 0.8% in the second quarter, has given many market participants pause for thought.

GDP fell at an annualised pace 0.7% in the in the first three months of 2015, worse than a preliminary estimate of +0.2% but ahead of economists' forecasts for a contraction of 1%.

Some economists have estimated that quirks in the statistical methods used to estimate GDP mean it is typically underestimated by about 1.5 percentage points in the first quarter of each year.

As well, activity was known to have been negatively impacted during the reference period by poor weather and strikes at ports on the west coast of the US.

Household consumption expanded at an annualised pace of 1.8% in the first three months of the year, below an initial estimate of 1.9% and growth of 4.4% in the last quarter of 2014.

Business investment was particularly weak, dropping by 2.8%, the most since 2009, although it came in ahead of a preliminary estimate of -3.4%.

Government spending declined 1.1%, less than the 0.8% initially thought.

Export growth was also a tad weaker than forecast, with overseas sales of goods and services declining by 7.6%, instead of the 7.2% fall initially calculated.

"If the US economy is unable to print positive growth after seven years of heavy cash injections and near zero interest rates, why are the S&P 500 and Dow Jones Industrials trading at all-time highs? The US economy might be walking blindly toward a fresh asset bubble. This time however, the manoeuvre margin is close to zero," says Ipek Ozkardeskaya, Market Analyst at London Capital Group.