Speed Reads

Economics

First quarter GDP shrank 1 percent

First quarter GDP shrank 1 percent

One of the hardest things in economics or, dare I say it, life in general is separating signal from noise and information that matters from information that doesn't matter.

Today, a new revised estimate of GDP showed that the U.S. economy contracted in the first quarter of 2014, down 1 percent:

(Bureau of Economic Analysis/Forbes)

Does that mean the U.S. economy is wounded and is about to fall back into recession (defined as 2 quarters of negative growth)? Or is this just a temporary blip on the road to better and stronger growth?

Nobody knows yet. Stocks actually rose on the news, suggesting that investors are still optimistic about the economy and the market. But the recovery from the Great Recession of 2008 has been pretty weak, and with the Fed gradually tapering its quantitative easing stimulus program, the economy could be vulnerable to another recession. With inflation remaining less than 2 percent, it would be wise for the Fed to delay further tapering to see if the economy is about to fall into another downturn.