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Issue #583 | Forest Products

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2014 Media Kit
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US economy stalls on inventories, trade

By: | at 06:29 PM | Channel(s): International Trade  

The U.S. economy barely grew in the first quarter as exports tumbled and businesses accumulated stocks at the slowest pace in nearly a year, but activity already appears to be bouncing back.

Gross domestic product expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said.

That was a sharp pullback from the fourth quarter’s 2.6 percent pace and was worse than economists’ expectations for a slowdown to a 1.2 percent rate. The slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.

The Commerce Department’s first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.

While harsh weather partially explains the weakness in growth, the magnitude of the slowdown could complicate the U.S. central bank’s message as it sets to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.

The first-quarter stall in growth, however, is likely to be temporary and recent data have suggested strength at the tail end of the quarter.

Separately, the ADP National Employment Report showed private employers added 220,000 jobs to their payrolls in April after increasing headcount by 209,000 in March.

“This weakness is not carrying through the second quarter,” said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.

Economists estimate severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.

Inventory Growth Decelerates

Businesses restocked inventories to the tune of $111.7 billion in the final three months of last year, but added only $87.4 billion more to stocks in the first quarter, the smallest amount since the second quarter of 2013.

The slowdown in restocking subtracted 0.57 percentage point from GDP growth in the first quarter.

Trade also undercut growth, taking off 0.83 percentage point, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate in the first quarter, the largest decline in five years, after growing at a 9.5 percent pace in the final three months of 2013.

Together, inventories and trade sliced off 1.4 percentage points from GDP growth. A measure of domestic demand that strips out exports and inventories expanded at a 1.5 percent rate.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.0 percent rate, reflecting a spurt in spending on services linked to demand for heating during the winter and the Affordable Healthcare Act, which expanded health care coverage to many Americans.

Spending on services grew at its quickest pace since the second quarter of 2000.

Spending on goods, however, slowed sharply, indicating that the frigid temperatures had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth-quarter.

Harsh weather also undercut business spending on equipment. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor. Business spending on equipment fell at its fastest pace in nearly five years.

Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.

A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the U.S. central bank. A bounce back is, however, expected in the April-June period. (Reuters)