The Incredible Shrinking Economy

GDP falls 2.9% in first quarter, worst tumble in five years.
4:47 | 06/25/14

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Transcript for The Incredible Shrinking Economy
It's Wednesday June 25 Wall Street is open for business and today's big number -- Minus two point 9% that's how -- US economy has -- in the first three months this year. That according to revised figures out this morning from the Commerce Department. Hello everyone I'm Michelle Franzen in New York here with all those details -- -- toll of Yahoo! finance like. First of all give us an ID idea what makes up the GDP. All the goods and services that the US economy produces any given year given quarter so this is. The commerce department's estimate of exactly what -- the economy grew worse frank act in the first quarter of this year first three months of this year. And give us an idea what happened here in this quarter what -- with all that's bad news. Well so what they have now determined is that the US economy seems to have. Retreated have declined in size at an annual rate of two point 9% in the first quarter so it's -- that's the annualized rate. Declined last month they thought it was about negative 1%. The first estimate back from April was that -- grew slightly zero point 1%. So obviously a much worse than expected picture of exactly how bad things work in the winter months mostly and it does seem as if those that bad winter weather did disrupt the economy more than expected but beyond that housing slowdown the consumer parts of the economy in this. Today's measure were particularly weak another factor was exports increased more than imports. Did in that actually works against. The the GDP maps a little bit so obviously worse than expected period to start off this year which is gonna drag down the overall 2004. Growth rate. So last month the Commerce Department estimated that GDP grew ever so slightly in the first quarter so how. The government if -- Iraq. It's not a matter of getting it wrong as much as it is this is -- massively complex exercise every quarter to figure out exactly what happened. In the entire US economy and so they intentionally create these this three stage -- process in fact it continues to get revised for years in the future because. You keep getting more information. So they kind of increasingly drill down as they go along the first one is called the advance number that was from April. Then you get the revised -- and this is the supposedly final estimate so it's not so much -- -- got it vastly -- as more information came in about business inventories. And about exports and imports it does seem as if it was -- weaker than initially asked -- So if weather was potentially a factor -- all these other factors going into the report what should investors businesses and consumers take forward in this. Yeah that's that's a great question right now -- and and then the markets are actually taking this in stride for one thing it's a very old number let's keep in mind. In the first quarter ended in -- nearly three months ago. And or actually yeah nearly three months ago and so it seems like it's not to mention effect today also all the information on the economy we've gotten pretty much since then has shown a pretty sharp rebound which does suggest that in fact weather was at least one big factor. In in the weak first quarter showing. So investors basically have to take away that. The economy remains on this very slow and steady pace you know it's been at around 2% annual rate since the end of the recession in. In 2000 and and nine which is really not that impressive but it has been steadily in that zone we're probably looking at something similar this year. Which is contrary to a lot of those estimates that in the back half of this year we were going to accelerate. Beyond 3% in fact the Federal Reserve itself has also been incorrect in the last several years -- anticipating. That kind of acceleration towards some kind of escape velocity in the economy seems like stones -- instead he's still the rule. Which for investors means low low interest rates for a long long time to come. And then Mike one quick last question if these are sort of court old numbers with the last quarter how important will it be to take a look at this quarter that's also get it right. It actually will be pretty important because we want a little bit of confirmation. That in fact it was you know substantially a weather story last quarter we want to confirmation that the overall trend. Of growth looks intact and really all the information suggests that. You know unemployment claims keep going down we had 200000 net new jobs the last two months in a -- it seems like things are fitting into place we really want that second quarter GDP number which some people think you get in the three and a half percent range. To show that we did snapped back. After that winter. Like -- toll from Yahoo! finance thanks for joining us I think you. You of course can keep up with the latest headlines right here on abcnews.com. Even watching the big number I'm Michelle Franzen in New York.

This transcript has been automatically generated and may not be 100% accurate.

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