US economy posts slower 0.2% rise in Q1
Print Edition
UNITED States economic growth braked more sharply than expected in the first quarter as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up.
Gross domestic product grew at a 0.2 percent annual rate, the Commerce Department said yesterday. That was a big drop from the fourth quarter’s 2.2 percent pace and marked the weakest reading in a year.
A strong US dollar and a now-resolved labor dispute at normally busy West Coast ports also slammed growth, the government said. The weak growth, though probably temporary, reduces the chances of a June interest rate hike from the Federal Reserve.
“A stalling of US economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed,” said Chris Williamson, chief economist at Markit in London.
Economists polled by Reuters had forecast the economy expanding at a 1 percent rate.
The sharp growth slowdown is probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.
While there are signs the economy is pulling out of the soft patch, data on home building, manufacturing, retail sales and business investment suggest the rebound will lack the vigor seen last year when the economy snapped back after being blindsided by cold weather.
At the start of this year, many economists believed the Fed would raise interest rates from near zero in June. Now, most of the guessing centers around September.
Hibernating consumers
The government did not quantify the impact of the weather, the strong dollar, lower energy prices and the ports disruptions on growth last quarter.
Economists, however, estimate unusually cold weather in February chopped off as much as half a percentage point, with the port disruptions shaving off a further 0.3 percentage points from the economy.
The weather impact was evident in weakness in consumer spending. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.9 percent rate. That was the slowest in a year and followed a brisk 4.4 percent pace in the fourth quarter.
The significant moderation in consumer spending occurred even though households enjoyed massive savings from a huge decline in gasoline prices. Consumers boosted their savings to US$727.8 billion from US$603.4 billion in the fourth quarter.
Construction also took a hit from the weather, while lower energy prices, which have cut into domestic oil production, undermined business investment.
Spending on nonresidential structures, which includes oil exploration and well drilling, tumbled 23.1 percent. That was the fastest pace of decline in four years and marked the first contraction since the first quarter of 2013.
The decline in nonresidential structures was driven by mining, exploration, shafts and wells, which plunged at a 48.7 percent pace in the first quarter.
“The downward pressure on profits, the large drop in oil-related investment and the strong dollar are holding back the US economy,” said Gad Levanon, a managing director at the Conference Board in New York.
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