U.S. Economic Growth Slows to a Crawl in First Quarter

Economy GDP
Tony Dejak/AP
By Lucia Mutikani

WASHINGTON -- The U.S. economy barely grew in the first quarter as exports tumbled and businesses accumulated stocks at the slowest pace in nearly a year, but activity already appears to be bouncing back.

Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said Wednesday.

That was a sharp pullback from the fourth quarter's 2.6 percent pace and was worse than economists' expectations for a slowdown to a 1.2 percent rate. The slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.

The Commerce Department's first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.

While harsh weather partially explains the weakness in growth, the magnitude of the slowdown could complicate the U.S. central bank's message as it sets to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.

U.S. stock index futures fell slightly on the report, while U.S. Treasury debt prices trimmed losses.

The first-quarter stall in growth, however, is likely to be temporary and recent data have suggested strength at the tail end of the quarter.

Separately, the ADP National Employment Report showed private employers added 220,000 jobs to their payrolls in April after increasing headcount by 209,000 in March.

"This weakness is not carrying through the second quarter," said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

Economists estimate severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.

Inventory Growth Decelerates

Businesses restocked inventories to the tune of $111.7 bln in the final three months of last year, but added only $87.4 billion more to stocks in the first quarter, the smallest amount since the second quarter of 2013.

The slowdown in restocking subtracted 0.57 percentage point from GDP growth in the first quarter.

Trade also undercut growth, taking off 0.83 percentage point, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate in the first quarter, the largest decline in five years, after growing at a 9.5 percent pace in the final three months of 2013.

Together, inventories and trade sliced off 1.4 percentage points from GDP growth. A measure of domestic demand that strips out exports and inventories expanded at a 1.5 percent rate.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3 percent rate, reflecting a spurt in spending on services linked to demand for heating during the winter and the Affordable Healthcare Act, which expanded health care coverage to many Americans.

Spending on services grew at its quickest pace since the second quarter of 2000.

Spending on goods, however, slowed sharply, indicating that the frigid temperatures had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth-quarter.

Harsh weather also undercut business spending on equipment. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor. Business spending on equipment fell at its fastest pace in nearly five years.

Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.

A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the U.S. central bank. A bounce back is, however, expected in the April-June period.

-Additional reporting by Richard Leong.


United States GDP Slows to Crawl in First Quarter

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7 Comments

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David

Blaming it on the weather is like blaming it on Bush. What I don't get is the Fed telling everybody that the economy is picking up. Who is lying?

April 30 2014 at 6:22 PM Report abuse rate up rate down Reply
rgkarasiewicz

The GDP probably fell -2.0% or better in the first quarter. As usual, the mainstream media tries to put the best possible spin on anything.

April 30 2014 at 12:18 PM Report abuse +1 rate up rate down Reply
jdykbpl45

Thank you Obama, Pelosi, Reid, Geithner, et al for the lousy economy!

April 30 2014 at 11:21 AM Report abuse rate up rate down Reply
2 replies to jdykbpl45's comment
stupid_republicans

Thank you Mitch McConnell for making Obama a one term president.......LMFAO !!!!!!!!!

April 30 2014 at 11:34 AM Report abuse -2 rate up rate down Reply
rgkarasiewicz

It all began when our crony politicians allowed the Jap transplants on our shores during the 'trickle-down economics" Reagan administration.

April 30 2014 at 12:55 PM Report abuse -2 rate up rate down Reply
bchrist751

One word explains the economic misery that American cannot escape from, the word is....

OBAMA!

April 30 2014 at 9:35 AM Report abuse rate up rate down Reply
1 reply to bchrist751's comment
teaparty2implode

That would be obstruction from the TPGOP. They don't want the economy to get better under Obama.

April 30 2014 at 9:40 AM Report abuse rate up rate down Reply