By
JEFFREY SPARSHOTT and
KATE DAVIDSON
April 29, 2015 8:31 a.m. ET
114 COMMENTS
WASHINGTON—The U.S. economy slowed sharply at the start of the year as businesses slashed investment, exports tumbled and consumers showed signs of caution, marking a return to the uneven growth that has been a hallmark of the nearly six-year economic expansion.
Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 0.2% seasonally adjusted annual rate in the first quarter, theCommerce Department said Wednesday. The economy advanced at a 2.2% pace in the fourth quarter and 5% in the third.
Economists surveyed by The Wall Street Journal had expected growth of 1% in the first three months of this year.
The first-quarter figures repeat a common pattern in recent years: one or two strong readings followed by a big slowdown. Before this year, first-quarter GDP growth had averaged 0.6% since 2010 and 2.9% for all other quarters. That has worked out to moderate overall expansion but no sustained breakout for the economy.
Last year, economists pinned much of the blame for a bad first quarter—GDP shrank 2.1%—on unusually harsh weather. This year, multiple factors appear to be at work, including another bout of blizzards, disruptions at West Coast ports, the stronger dollar’s effect on exports and the impact of cheaper oil.
And while most economists expect another second-quarter rebound, some forecasts are muted. Ahead of Wednesday’s GDP release, for example, J.P. Morgan Chase was predicting only a 2.5% pace in the second quarter.
Wednesday’s report showed consumer spending, which accounts for more than two-thirds of economic output, decelerated to a 1.9% pace in the first quarter, down from 4.4% growth in the fourth quarter.
Households last year were buoyed by strong job growth and tumbling gasoline prices. But fuel costs have crept up since the start of the year and the labor market appeared to downshift in March, damping confidence.
Another key driver of the economy, business spending, also has faltered of late. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—retreated at a 3.4% rate, compared with a 4.7% rise in the fourth quarter.
Energy companies in particular are feeling the effects of cheaper oil. Business investment in structures fell 23.1%, led by a 48.7% contraction for mining sector spending on shafts and wells, Commerce said.
A stronger dollar, meanwhile, has made domestically produced goods more expensive overseas and foreign products cheaper inside the U.S. Combined with disruptions at West Coast ports, trade was constrained. In the first quarter, exports fell at a 7.2% rate, compared with 4.5% growth in the fourth quarter. Imports rose 1.8%, compared with 10.4% in the fourth quarter.
Federal government spending added little to the economy in the fist quarter, expanding 0.3%, compared with a 7.3% fall in the fourth quarter.
And rising inventories contributed 0.74 percentage point to GDP in the first quarter.
Excluding the effect of company restocking, underlying demand in the economy was weak. Real final sales of domestic product, a measure that excludes changes to inventories, shrank at a 0.5% pace, compared with a 2.3% rise in the fourth quarter.
Alongside weak growth in the quarter, prices fell.
The price index for personal consumption expenditures—the Federal Reserve’s preferred measure for inflation—declined at a 2% annual rate, well below the central bank’s 2% inflation growth target. Core prices, which exclude volatile food and energy components, were up 0.9%, the lowest level since 2010.
The latest reading on the economy arrives in the middle of a two-day Fed meeting where policy makers will weigh the latest data against plans to start raising short-term interest rates. No action is expected from the Fed on Wednesday, but investors will look for clues on the timing for the first rate increase since 2006 in a policy statement due out at 2 p.m. ET.
KILLIN IT!
JEFFREY SPARSHOTT and
KATE DAVIDSON
April 29, 2015 8:31 a.m. ET
114 COMMENTS
WASHINGTON—The U.S. economy slowed sharply at the start of the year as businesses slashed investment, exports tumbled and consumers showed signs of caution, marking a return to the uneven growth that has been a hallmark of the nearly six-year economic expansion.
Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 0.2% seasonally adjusted annual rate in the first quarter, theCommerce Department said Wednesday. The economy advanced at a 2.2% pace in the fourth quarter and 5% in the third.
Economists surveyed by The Wall Street Journal had expected growth of 1% in the first three months of this year.
The first-quarter figures repeat a common pattern in recent years: one or two strong readings followed by a big slowdown. Before this year, first-quarter GDP growth had averaged 0.6% since 2010 and 2.9% for all other quarters. That has worked out to moderate overall expansion but no sustained breakout for the economy.
Last year, economists pinned much of the blame for a bad first quarter—GDP shrank 2.1%—on unusually harsh weather. This year, multiple factors appear to be at work, including another bout of blizzards, disruptions at West Coast ports, the stronger dollar’s effect on exports and the impact of cheaper oil.
And while most economists expect another second-quarter rebound, some forecasts are muted. Ahead of Wednesday’s GDP release, for example, J.P. Morgan Chase was predicting only a 2.5% pace in the second quarter.
Wednesday’s report showed consumer spending, which accounts for more than two-thirds of economic output, decelerated to a 1.9% pace in the first quarter, down from 4.4% growth in the fourth quarter.
Households last year were buoyed by strong job growth and tumbling gasoline prices. But fuel costs have crept up since the start of the year and the labor market appeared to downshift in March, damping confidence.
Another key driver of the economy, business spending, also has faltered of late. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—retreated at a 3.4% rate, compared with a 4.7% rise in the fourth quarter.
Energy companies in particular are feeling the effects of cheaper oil. Business investment in structures fell 23.1%, led by a 48.7% contraction for mining sector spending on shafts and wells, Commerce said.
A stronger dollar, meanwhile, has made domestically produced goods more expensive overseas and foreign products cheaper inside the U.S. Combined with disruptions at West Coast ports, trade was constrained. In the first quarter, exports fell at a 7.2% rate, compared with 4.5% growth in the fourth quarter. Imports rose 1.8%, compared with 10.4% in the fourth quarter.
Federal government spending added little to the economy in the fist quarter, expanding 0.3%, compared with a 7.3% fall in the fourth quarter.
And rising inventories contributed 0.74 percentage point to GDP in the first quarter.
Excluding the effect of company restocking, underlying demand in the economy was weak. Real final sales of domestic product, a measure that excludes changes to inventories, shrank at a 0.5% pace, compared with a 2.3% rise in the fourth quarter.
Alongside weak growth in the quarter, prices fell.
The price index for personal consumption expenditures—the Federal Reserve’s preferred measure for inflation—declined at a 2% annual rate, well below the central bank’s 2% inflation growth target. Core prices, which exclude volatile food and energy components, were up 0.9%, the lowest level since 2010.
The latest reading on the economy arrives in the middle of a two-day Fed meeting where policy makers will weigh the latest data against plans to start raising short-term interest rates. No action is expected from the Fed on Wednesday, but investors will look for clues on the timing for the first rate increase since 2006 in a policy statement due out at 2 p.m. ET.
KILLIN IT!
