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U.S. economy barely grows in first quarter

30 April 2014 19:40 (UTC +04:00)

Baku-APA. U.S. economic growth almost stalled in the first quarter this year, as slumping exports and private investment weighed on solid growth of personal consumption, renewing concerns that the economic recovery remained on a fragile footing, APA reports quoting Xinhua.

U.S. real gross domestic product increased at an annual rate of 0.1 percent in the first quarter, sharply down from a growth of 2.6 percent in the previous quarter, the slowest pace since the fourth quarter of 2012, the Commerce Department announced Wednesday.

The severe winter weather early this year has prompted economists to lower their growth forecast, but Wednesday's data was still much lower than expected.

Personal consumption rose 3 percent, slightly down from a growth of 3.3 percent in the fourth quarter last year.

Although personal consumption is the main engine of the U.S. economy as it accounts for about 70 percent of overall economic activity, a solid growth in the first quarter was counterbalanced by slumping private investment and exports.

Exports tumbled 7.6 percent after gaining 9.5 percent in the previous quarter. Exports of goods dwindled 12 percent, while that of services went up 3 percent. Imports fell 1.4 percent.

Private domestic investment fell 6.1 percent after increasing 2.5 percent in the proceeding period, with non-residential investment down 5.7 percent and residential investment down 2.1 percent.

The negative impacts of government spending cut continued to wan in the first quarter, as government consumption expenditures and investment fell 0.5 percent, much smaller than a decrease of 5.2 percent in the previous quarter.

Federal government spending increased 0.7 percent, compared with a severe contraction of 12.8 percent in the previous quarter. State and local government spending fell 1.3 percent.

Even so, many economists believed the weak figure was distorted by the severely cold weather and the economy would rebound in the next months.

Paul Ashworth of Capital Economics estimated that growth in the second quarter would pick up to an annual rate of 3.5 percent before settling down to 3 percent for the year.

Mark Zandi, chief economist at Moody's Analytics, believed the job market would improve across all industries after the harsh winter.

The economists' view was supported by a string of upbeat data released in March, with manufacturing activities, personal income and spending, and inventory building expanding at brisk pace.

But fundamental weakness remained, as the real estate market softened although the harsh weather ended. Sales of existing home and new home grew less than expected in March, dragged by rising prices and higher mortgage rates.

Wednesday's data are expected to be considered by the Federal Reserve at its regular monetary policy meeting. The Fed had previously attributed the slowing economy to the bad weather.

Since the beginning of this year, the Fed has been reducing the amount of money it is pumping into the recovery by trimming the monthly bond purchase by 10 billion U.S. dollars a month. Wednesday's data could complicate its decision.

The Commerce Department said Wednesday's advance estimate was based on incomplete source and data. A revision will be released on May 29.