Economy took smaller hit than previously estimated

The U.S. economy faced a smaller decline than previously estimated, shrinking just 0.2 percent in the first quarter of the year according to the Commerce Department.

The new estimate is an upgrade from the 0.7 percent decline previously estimated by the government, and follows a 2.2 percent increase in the final months of 2014.

{mosads}The upgrade came on the back of improved consumer spending, private investment and government spending than previously estimated. And much of the shortfall is attributed to factors that could be transitory. For example, harsh winter weather weighed on the economic activity at the beginning of 2015, and a port dispute along the West Coast drove down exports, which were a significant negative factor in the overall estimate.

Furthermore, the White House argued that the decline in business investment could be attributed to the reduced drilling and mining activity caused by the large decline in oil prices.

Reacting to the latest numbers, the administration was quick to highlight the overall strong numbers over the last year or so, instead of the slight contraction to open 2015.

“The slower first quarter follows a solid increase of 3.6 percent at an annual rate during the second half of 2014,” said Jason Furman, head of the White House’s Council of Economic Advisors. “Over the past four quarters, GDP rose 2.9 percent.”

The overall trajectory of the U.S. economy carries significant policy implications, as the Federal Reserve is considering its first interest rate hike in nearly a decade later this year. Fed Chairwoman Janet Yellen has said the Fed needs to see further improvement in the economy before acting, but emphasized that the fundamentals of the economy are solid and the nation is poised for stronger growth.