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U.S. Economic Output Is Revised to Show Smaller Contraction

Townhouses under construction in Washington. In recent months, housing and retail segments of the economy have gained momentum.Credit...Drew Angerer/Getty Images

While nothing to brag about, the economy’s performance in early 2015 was not quite as bad as the number crunchers in Washington had thought.

The Commerce Department said on Wednesday that the economy shrank at an annual rate of 0.2 percent in the first quarter of 2015, an upward revision from the 0.7 percent contraction reported last month.

The result, which was the third estimate of first-quarter gross domestic product, is hardly good news, but with the final revision now out, the prevailing view that the weakness was caused mostly by temporary factors — not more fundamental ones — seems to have been borne out.

Cold weather hurt retail sales in early 2015 as shoppers stayed home, while a labor dispute at ports on the West Coast hurt the trade balance. The repeated pattern of first-quarter weakness has also prompted government economists and statisticians to review how they compile the data for growth.

“Activity is bubbling beneath the surface, and the economy seems to be resilient in the face of global headwinds,” said Gregory Daco, who is based in New York, the head of United States macroeconomics for Oxford Economics, a private forecasting firm.

The final revision was driven largely by improved data for consumer activity, continued gains in the housing industry and additional restocking of shelves and warehouses by businesses.

“The first quarter was soft, but growth through the rest of the year should be much better,” said Guy Berger, United States economist at RBS in Stamford, Conn.

In recent months, fresher economic indicators have shown retail activity picking up, as well as healthy gains in payrolls and new-home sales. On Tuesday, the Commerce Department reported that new-home sales last month reached their highest level since 2008.

The good news in the real estate market is an important step forward. Housing led the rest of the economy down in the recession, and a plunge in construction contributed to the loss of millions of jobs.

While new-home sales remain well below their peak during the housing boom of the mid-2000s, their gradual recovery bodes well for overall economic growth. After shedding more than two million jobs during the recession and afterward, construction companies have regained about a half-million positions in the last two years.

Most economists are looking for the annual rate of growth to rebound to between 2 and 3 percent in the second quarter, which will end on Tuesday. That is a significant shift from the beginning of June, when many economists predicted that growth would barely top 2 percent for the April, May and June period.

Still, Mr. Berger cautioned that it remained to be seen whether some of the headwinds that hurt growth in the first quarter — like the stronger dollar — would persist throughout 2015. “The dollar’s impact isn’t played out,” he said. “Drags from trade tend to take a while to fully materialize.”

Over the next three quarters, Mr. Berger expects the economy to expand at an annual rate of about 3 percent. Given the contraction in the first quarter, that would bring the annual growth rate for 2015 to 2.2 percent. Last year, when the economy registered an even deeper dip in the first quarter, the annual rate of growth was 2.4 percent.

While the trade picture will remain cloudy as exporters feel the pinch from the strong dollar, the steady pace of gains in the labor market should bolster the American economy’s overall health this year. Next week, the Labor Department will report on hiring and unemployment in June. Economists estimate that payrolls will grow by well over 200,000 and that the unemployment rate will fall slightly.

“We’re very focused on the labor market — that’s the single most important bellwether for the economy,” Mr. Berger said. “As long as the job market remains healthy, that should spill over into healthier consumer spending.”

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: U.S. Economy Shrank Less in First Quarter Than Initially Thought. Order Reprints | Today’s Paper | Subscribe

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