U.S. GDP Shrinks at 2.9% Rate in Q1, Stocks Trade Sideways

Nichole Harper
25 Jun, 2014
New York City

U.S. first quarter GDP shrinkage was revised to 2.9%, worse since the first quarter 2009 decline of 5.4%. Smaller consumer spending and a larger decline in exports contributed to the fall. Supreme Court blocked independent streaming of broadcast TV.

[R]10:35 AM New York – U.S. first quarter GDP shrinkage was revised to 2.9%, worse since the first quarter 2009 decline of 5.4%. Smaller consumer spending and a larger decline in exports contributed to the fall. Supreme Court blocked independent streaming of broadcast TV.[/R]

Stocks opened higher and but struggled to stay above flat line after oil gained and first quarter GDP shrinkage was revised lower.

S&P 500 index increased 3.41 to 1,953.52 and the Nasdaq Composite Index added 9.20 to 4,359.64.

U.S. GDP Contracts at 2.9% in First Quarter

The U.S. economy contracted at a faster pace than previously estimated in the first-quarter by the Commerce Department

The gross domestic product in the quarter declined at an annual rate of 2.9% compared to the previous estimate of 1%.

The decline was the sharpest since the contraction of 5.4% in the first quarter of 2009 during the Great Recession. The economy has been expanding since its last decline of 1.3% in the first quarter of 2011.

A sharp fall in healthcare spending drove the consumer spending at a smaller than expected growth. Spending increased at 1% compared to the previous estimate of 3.1% gain estimated by the government agency.

In addition, exports declined 8.9% compared to previous estimate of 6% fall and businesses replenished inventories at a slower pace than previous thought.

However, the economy is expected to make up the lost ground if latest data on the exports and construction industry hold in the rest of the quarter.

Job growth, consumer confidence and measures of manufacturing and service sectors show rising activities and new homes sales have picked up at the fastest pace in May.

Asian Markets

Stocks in Tokyo closed lower and market indexes declined for the second day this week as investors reviewed the latest government plan to spur economic growth.

Prime Minister Shinzo Abe announced a plan that was very close to the draft released a month ago that will lower corporate taxes to 30% over the next years beginning current year.

Prime Minister announced so called “third arrow” of his economic measures after monetary and fiscal stimulus proved to be catalysts to rekindle inflation and promote more economic activities.

The government also plans to lower trade barriers and remove hurdles for consolidation of agricultural land and create special economic zones with lighter regulations. The government is also willing to pass a new casino law to attract more tourists.

The Nikkei 225 Stock Average slipped 109.63 or 0.7% to 15,266.61 and the broader Topix index slid 7.67 to 1,260.83.

The yen fell to close at 101.88 against one U.S. dollar.

In Mumbai trading, the Sensex Index slipped 55.16 or 0.2% to close at 25,313.74 The CNX Nifty fell 10.95 to 7,569.25.

DCM Shriram sold its textile spinning mill in Rajasthan. Indian Hotels plans to raise Rs 1,000 crore through a convertible debenture issue. Parsvnath Developers expects to raise $168 million through land sales.

U.S. Stocks in Review

Barnes & Noble, Inc ((BKS)) soared 9.9% or $2.02 to $22.60 after the company said it plans to separate its loss making nook division to create more shareholder value.

Coach Inc declined 0.22 to $33.89 after Bank of America lowered its view on the retailer and recommended investors to sell the stock.

General Mills, Inc ((GIS)) declined 3% or $1.72 to $51.97 after the maker of food products said it plans to review its North American manufacturing and distribution network and identify capacity reductions possibilities.

HanesBrands Inc ((HBI)) surged 8.8% or $7.76 to $96.35 and the clothing maker said it plans to acquire DBApparel for 400 milion euros or $545 million.

Monsanto Company ((MON)) jumped 5% or $6.37 to $127.01 after the maker of genetically modified seeds reported fiscal third-quarter net income of $1.62 a share.

The agriculture products company also revised higher full-year earnings to a range of $5.10 to $5.20 a share from the previous estimate between $5 and $5.20 a share.