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 Gross domestic product expanded at a 0.1 percent annual rate, the
slowest since the fourth quarter of 2012, the Commerce Department
said on Wednesday.
"This quarter was impacted heavily by the weather. Growth is down,
but not out, not by a long shot, and we look for it to quicken later
on in the spring," said Chris Rupkey, chief financial economist at
Bank of Tokyo-Mitsubishi UFJ in New York.
The slowdown, which also reflected the slowest inventory
accumulation in nearly a year, was much sharper than Wall Street had
braced for. Economists expected a 1.2 percent growth pace.
It suggested the economy could struggle to achieve the 3 percent
break-out growth that had been widely anticipated this year, but did
little to alter forecasts for coming quarters.
Federal Reserve officials, who concluded a two-day policy meeting
just hours after the government released its first snapshot of
first-quarter growth, brushed aside the slowdown. They focused
instead on other data that have suggested strength at the tail end
of the quarter.
In its statement, the Fed said "growth in economic activity has
picked up recently, after having slowed sharply during the winter in
part because of adverse weather conditions."
The U.S. central bank announced a further reduction in the amount of
money it is pumping into the economy through monthly bond purchases.
Separate reports on Wednesday showed private employers added 220,000
workers to their payrolls in April, while business activity in the
Midwest hit a six-month high, with new orders surging and employment
rising.
U.S. stocks were trading higher, but the dollar fell against a
basket of currencies. Prices for U.S. government debt rose.
NO FUNDAMENTAL WEAKNESS
"Our bet is that the weakness we are seeing is still more transitory
than fundamental," said Diane Swonk, chief economist at Mesirow
Financial in Chicago.
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.
Businesses restocked inventories to the tune of $111.7 billion 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, but inventories should be a boost to
second-quarter growth.
"It looks like most of the inventory correction will be contained in
the first quarter," said Daniel Silver, an economist at JPMorgan in
New York.
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Trade lopped off 0.83 percentage point from growth, partly because
of the weather, which left goods piling up at ports. Exports fell at
a 7.6 percent rate, the largest quarterly decline in five years,
after growing at a 9.5 percent pace in the final three months of
2013.
A measure of domestic demand that strips out exports and inventories
expanded at a 1.5 percent rate and there were virtually no signs of
inflation pressures.
Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, increased at a 3.0 percent rate, reflecting a
spurt in spending on services linked to demand for heating and the
Affordable Healthcare Act, which expanded healthcare coverage to
many Americans.
Spending on services grew at its quickest pace since the second
quarter of 2000, with healthcare contributing a solid 1.10
percentage points to GDP growth.
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, which
fell at its fastest pace in nearly five years. While investment in
nonresidential structures, such as gas drilling, rebounded, the
increase was minor.
Investment in home building contracted for a second straight
quarter, another sign of the hit from the weather, although 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. A bounce back, however, is expected in
the April-June period.
"The technical recession in housing is a major yellow flag in terms
of the strength of the domestic economy. It will be a while before
the Fed starts raising interest rates," said Brian Bethune, chief
economist at Alpha Economic Foresights in Boston.
(Reporting by Lucia Mutikani; editing by Andrea Ricci)
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