U.S. Economic Growth Slows Even More Than Expected In Q1

While U.S. economic growth in the first three months of 2015 was expected to be weak due to the severe winter weather, the Commerce Department released a report on Wednesday showing that the gross domestic product increased by even less than anticipated.

The Commerce Department said U.S. GDP inched up by just 0.2 percent in the first quarter following the 2.2 percent growth seen in the fourth quarter. The modest uptick compared to economist estimates for an increase of about 1.0 percent.

The report showed a significant slowdown in the pace of consumer spending growth, as the rough weather kept consumers away from stores despite the recent drop in energy prices.

Personal consumption expenditures increased by a slightly bigger than expected 1.9 percent in the first quarter, although that compares to a 4.4 percent jump in the fourth quarter.

The substantially slower GDP growth also reflected downturns in exports, non-residential fixed investment, and state and local government spending.

Exports tumbled by 7.2 percent in the first quarter after climbing by 4.5 percent in the fourth quarter, with the pullback reflecting the impact of a labor dispute at West Coast ports.

Additionally, the 3.4 percent drop in non-residential fixed investment came as a reduction in domestic oil exploration and drilling contributed to a 23.1 percent decrease in investment in non-residential structures.

The Commerce Department said the slowdown in GDP growth was partly offset by upturns in private inventory investment and federal government spending and a deceleration in imports, which are a subtraction in the calculation of GDP.

Despite the disappointing data, many economists noted that the weakness was primarily due to temporary factors such as the weather and the ports dispute.

The pace of U.S. economic growth is subsequently expected to see a significant re-acceleration in the second quarter of 2015.

Rob Carnell, chief international economist at ING, noted that the Federal Reserve will have to take the outlook for future growth into account when discussing the timing of the first interest rate hike.

“Though it takes a leap of faith to say that the second quarter will see the bounce we are anticipating, this latest GDP figure provides no reason for undue pessimism,” Carnell said.

He added, “We think the Fed will have to give the economy the benefit of the doubt, and as such, it will be hard for them to categorically rule out a June hike, even though the odds are currently stacked against one.”

On the inflation front, the Commerce Department said its reading on core consumer prices, which exclude food and energy prices, rose by 0.9 percent in the first quarter following a 1.1 percent increase in the fourth quarter.

Published: 2015-04-29 14:40:00 UTC+00

U.S. Economic Growth Slows Even More Than Expected In Q1