Home Business US economic growth slows to 0.1% in 2014 Q1

US economic growth slows to 0.1% in 2014 Q1


US economic growth slowed sharply in 2014 Q1, growing at an annual rate of 0.1%.

The rate is the slowest for a year and a large fall on the 2.6% increase in gross domestic product (GDP) in the final quarter of last year.

An unusually cold and disruptive winter, coupled with tumbling exports, contributed to the decline, the US Commerce Department said.

But it said economic activity already appeared to be bouncing back.

Business investment fell by 2.1%, with spending on equipment plunging by 5.5% at an annual rate compared with a year earlier.

Residential construction, which was inevitably hit by the unusually cold winter fell by 5.7% although it was also hit by higher house prices and a shortage of available homes for sale.

US economic growth slowed sharply in 2014 Q1

US economic growth slowed sharply in 2014 Q1

The US trade deficit widened, thanks to a sharp fall in exports which 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.

But consumer spending – which drives 70% of growth in the US economy – grew by 3%, although the increase was dominated by a 4.4% rise in spending on services, reflecting higher utility bills during the bitterly cold winter.

A cutback in spending by state and local governments also helped offset a rebound in federal activity after the 16-day partial government shutdown last year.

But most economists expect a strong rebound in growth in the April-June quarter. The consensus view is the economy will expand by 3% in the second quarter.

Analysts said stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.

In fact, many analysts believe 2014 will be the year the recovery from recession finally achieves the robust growth needed to accelerate hiring and reduce still-high unemployment.

If the economy rebounds as strongly as they suggest, it will have experienced the fastest annual expansion in the economy in nine years.

The last time growth was as strong was in 2005, when GDP grew 3.4%, two years before the nation fell into the worst recession since the 1930s.

Unemployment is expected to fall to 6.2% by the end of this year from 6.7% in March.

The growth figures come a few hours before a policy statement from the US Federal Reserve, the country’s central bank.

But few expect the disappointing news to have any impact on the scaling back of the Fed’s economic stimulus, which has seen it cut bond purchases by $10 billion per month.

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