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U.S. economy slows to 0.1 percent growth rate

WASHINGTON — The U.S. economy slowed sharply in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.

Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday, well below the 1.1 percent rise economists had predicted. That was the weakest pace since the end of 2012 and was 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. They noted that several sectors — from retail sales to manufacturing output — rebounded in March. That strength should provide momentum for the rest of the year.

And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.

"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.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects 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.

A widening of the trade deficit, thanks to a sharp fall in exports, shaved growth by 0.8 percentage points in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage points. Consumer spending on goods rose just 0.4 percent, the smallest gain in nearly three years.

Economists say most of the factors that depressed growth in the first quarter have already begun to reverse. Most say stronger growth should endure through the rest of the year as the economy derives help from job gains, rising consumer spending and a rebound in business investment.

In fact, many analysts believe 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that's needed to accelerate hiring and reduce still-high unemployment. Many analysts think annual economic growth will remain around 3 percent for the rest of the year.

If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product 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.

More economic news

• The Federal Reserve continued to retreat from its stimulus campaign Wednesday. As expected, the Fed announced after a two-day meeting of its policymaking committee that it would pare its purchases of Treasury and mortgage-backed securities by $10 billion, to $45 billion a month starting this month.

• U.S. businesses boosted hiring in April, according to payroll processer ADP, which said Wednesday that private employers added 220,000 jobs in April, the most since November and up from 209,000 in March. Economists are forecasting that the government's monthly jobs report, due Friday, will show employers added 210,000 jobs in April, according to a survey by FactSet.

U.S. economy slows to 0.1 percent growth rate 04/30/14 [Last modified: Wednesday, April 30, 2014 8:45pm]
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