US economy contracts in Q1

The US economy shifted into reverse in the first three months of 2014 shrinking by an annualised rate of 1%, official estimates have shown. It is the worst economic performance since the first quarter of 2011.

It is also a big fall on the 2.6% rise in economic output in the final quarter of last year. The US Commerce Department's first reading of Gross Domestic Product (GDP) showed the economy grew at an annualised rate of just 0.1%.

The fall in output was blamed on an unusually cold and disruptive winter - one of the coldest in the US for 20 years - and a plunge in business investment.

Nobody thinks the US economy is slipping back into recession. Still it's a nasty reminder that instead of robust growth America's recovery is just ticking along.Given the slow return to health, the recovery in American corporate profits since the financial crisis has been all the more remarkable. But has it finally peaked? This release shows corporate profits fell 9.8% (non annualised) in the first three months of the year. There are plenty of reasons why they were squeezed, including the weather but it still bears watching. Economists estimate the weather could have cost up to 1.5 percentage points of GDP.

However, the Commerce's Department's report did not estimate the effect of the winter weather. The fall was also twice as big as economists expected.

Most Wall Street analysts had forecast the economy to contract by around 0.5%.

But the Commerce Department said there was already evidence that the economy was rebounding, with data ranging from employment to manufacturing activity already pointing to a sharp acceleration in economic activity in the second quarter.

Tumbling exports, while not as severe as initially thought, combined with stronger imports in the first quarter resulted in a larger than expected trade deficit which shaved 0.95 percentage points off US economic output.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased by 3.1%, which was revised up slightly from 3% in the first estimate.

Port of Los Angeles America's trade deficit also worsened in the first quarter as imports rose.

Business spending on non-residential structures, such as gas drilling, fell by 7.5%. It had previously been reported to have increased by 0.2% .

The report showed corporate pre-tax profits also plunged 13.7% in the first quarter, the biggest drop since the fourth quarter of 2008.

- BBC