WASHINGTON - U.S. economic growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter as a harsh winter exacted a toll on business activity, the Commerce Department said Wednesday.
While the rate was the weakest pace since the end of 2012 - and down from a 2.6 percent rate in the previous quarter- many economists said the government’s first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter.
The economists said the slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather. They noted that several sectors - including retail sales and manufacturing output - rebounded in March and should provide momentum for the rest of the year.
“While Quarter One was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began,” said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.
And economists expect the government to report on Friday a solid 200,000-plus job gain for April.
On Wednesday, Federal Reserve policymakers decided to trim the pace of bond purchases as they looked beyond the slowdown in growth. In a unanimous vote, the committee pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.
“Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions,”the Federal Open Market Committee said in a statement after a meeting in Washington, D.C. “Household spending appears to be rising more quickly.”
The Fed’s bond purchases have been intended to keep long-term loan rates low.
Samuel Coffin, an economist at UBS Securities LLC in New York, who projected a 0.5 percent gain in gross domestic product, called Wednesday an “odd day” for Fed policymakers.
“I think they’re still tapering. I think they’ll blame this on the weather,” Coffin said. “So much of this is conditioned by that anomalous drop in exports and inventories and by the weather effect, and if anything one expects more of a rebound in the second quarter.”
For all of 2013, the economy expanded 1.9 percent after a 2.8 percent gain in 2012.
The first quarter of 2014’s scant 0.1 percent growth rate in the GDP, the country’s total output of goods and services, was well below the 1.1 percent rise economists had predicted. The last time a quarterly growth rate was so slow was in the final three months of 2012, when it was also 0.1 percent.
Ian Shepherdson, chief economist at Pantheon Marcroeconomics, said he expects the economy’s growth to rebound to a 3 percent annual rate in the current April-June quarter. Other economists have made similar forecasts.
A variety of factors held back first-quarter growth. Business investment fell at a 2.1 percent rate, with spending on equipment plunging at a 5.5 percent annual rate. Residential construction fell at a 5.7 percent rate. Housing was hit by winter weather and by other factors such as higher home prices and a shortage of available houses.
In its report Wednesday, the Commerce Department said consumer spending grew at a 3 percent annual rate last quarter. But that gain was dominated by a 4.4 percent rise in spending on services, reflecting higher utility bills. Spending on goods barely rose. Also dampening growth were a drop in business investment, a rise in the trade deficit and a fall in housing construction.
The gain in consumer purchases, which account for about 70 percent of the economy, exceeded the 2 percent median forecast in the Bloomberg survey. Personal consumption added 2 percentage points to growth. Spending climbed at a 3.3 percent pace in the last three months of 2013.
The expiration of emergency unemployment aid for about 1.6 million job-seekers may also have weighed on consumer spending in the first quarter, analysts said. At the same time, a pickup in health spending and a boost in household incomes came as major provisions of the president’s signature healthcare law took effect.
Any acceleration in economic growth will depend on a pickup in consumer activity, which hinges on further labor market progress. Payrolls probably climbed by 215,000 workers in April after rising 192,000 in March, based on the median estimate in a Bloomberg survey of economists. The Labor Department is scheduled to release payroll data Friday .
Unemployment stood at 6.7 percent in March, unchanged from the prior month, and economists project that it eased to 6.6 percent in April.
Aside from consumer spending on services, the rest of the economy sputtered. Business investment dropped at a 2.8 percent annualized rate, the weakest print since the fourth quarter of 2009. Part of that reflected a smaller gain in inventories that cut 0.6 percentage point from growth.
Exports declined 7.6 percent, exceeding the decrease in imports and pushing the trade gap up to $414.4 billion from $382.8 billion in the fourth quarter. Trade subtracted another 0.8 percentage point from GDP.
Government expenditures also decreased, led by cuts in federal military outlays and by state and local agencies.
Many analysts believe 2014 will be the year the recovery from the recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment, with economic growth remaining around 3 percent for the rest of the year.
If that proves accurate, the economy will have produced the fastest annual expansion in GDP, the broadest gauge of the economy’s health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 percent, two years before the nation fell into the worst recession since the 1930s.
Economists surveyed in April by The Associated Press said they expected unemployment to fall to 6.2 percent by the end of this year.
Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year - starting with the April jobs report.
“Those are the types of job gains which will generate incomes and consumer confidence going forward,” Naroff said.
Information for this article was contributed by Martin Crutsinger of the The Associated Press and by Jeanna Smialek and Chris Middleton of Bloomberg News.
Business, Pages 25 on 05/01/2014