The U.S. economy barely grew at all in the first quarter as harsh winter weather chilled investment and exports dropped. The stall occurred even as consumer spending on services rose by the most in 14 years.
Gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 1.2 percent increase. Household purchases rose at a 3 percent pace, spurred by utility outlays and spending on health care tied to President Barack Obama’s Affordable Care Act.
The pullback in growth came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc. Gains in retail sales, employment and manufacturing at the end of the quarter indicate the setback will be temporary, so Federal Reserve policy makers meeting today in Washington will probably take little heed.
“So much of this is conditioned by that anomalous drop in exports and inventories and by the weather effect, and if anything one expects more of a rebound in the second quarter,” said Samuel Coffin, an economist at UBS Securities LLC in New York, who projected a 0.5 percent gain in GDP. Coffin called this an “odd day” for Fed policy makers. “I think they’re still tapering. I think they’ll blame this on the weather.”
Companies added more workers in April than at any time in the previous five months, signaling further progress in the labor market, a private payrolls report also showed today. The 220,000 increase in employment followed a revised 209,000 gain the prior month that was stronger than initially estimated, according to figures today from the Roseland, New Jersey-based ADP Research Institute. The median forecast of economists surveyed by Bloomberg called for an advance of 210,000 in April.
Stock-index futures dropped after the report, erasing earlier gains. The contract on the Standard & Poor’s 500 Index maturing in June was little changed at 1,871.2 at 8:51 a.m. in New York.
Economists’ projections for GDP, the value of all goods and services produced, ranged from unchanged to 2 percent. Today’s estimate is the first of three for the quarter, with the next reading scheduled for May 29, at which point more data will be available.
For all of 2013, the economy expanded 1.9 percent after a 2.8 percent gain in the prior year.
The gain in consumer purchases, which account for about 70 percent of the economy, exceeded the 2 percent median forecast in the Bloomberg survey. Personal consumption added 2 percentage points to growth. Spending climbed at a 3.3 percent pace in the last three months of 2013.
While the wintry weather held back purchases of goods, which climbed at a 0.4 percent pace - the least in almost two years - it also boosted outlays on utilities to keep warm, and did little to prevent Americans from taking advantage of the ACA, which the Commerce Department said boosted spending.
Expenditures on services climbed at a 4.4 percent pace, the biggest gain since the second quarter of 2000. Outlays of health care jumped by $43.3 billion at an annualized rate to $1.85 trillion. It contributed 1.1 percentage points to growth, the most since quarterly records began in 1947.
Retail sales dropped in January amid the winter chill, though a March bounce-back partly offset the weak start. Sales jumped 1.1 percent last month after rising 0.7 percent in February, having fallen by 0.7 percent in January, Commerce Department figures showed.
As the weather warmed in March, auto dealerships became busier as Americans took advantage of incentives. Cars and light trucks sold in March at a 16.3 million annualized rate, the fastest since May 2007, following a 15.3 million pace the prior month, according to data from Ward’s Automotive Group.
Burger King Worldwide Inc., the Miami-based fast food chain, was also among businesses to see a weather-induced slowdown reverse.
January and February’s cold and snow “negatively impacted our traffic,” Daniel Schwartz, chief executive officer, said in an April 25 earnings call. “As this weather subsided later in March, we saw one of our highest months in restaurant sales in recent history.”
The expiration of emergency unemployment aid for about 1.6 million job-seekers may also have weighed on consumer spending in the first quarter. At the same time, a pickup in health spending and a boost in household incomes came as major provisions of the President’s signature health-care law took effect.
Aside from consumer spending on services, the rest of the economy sputtered. Business investment dropped at a 2.8 percent annualized rate, the weakest print since the fourth quarter of 2009. Part of that reflected a smaller gain in inventories that cut 0.6 percentage point from growth.
Exports declined 7.6 percent, exceeding the decrease in imports and pushing the trade gap up to $414.4 billion from $382.8 billion in the fourth quarter. Trade subtracted another 0.8 percentage point from GDP.
Government expenditures also decreased, led by cuts in federal military outlays and by state and local agencies.
The data also showed price pressures remain muted. A measure of inflation, which is tied to consumer spending, climbed at a 1.4 percent annualized rate compared with 1.1 percent in the prior period. The Fed’s goal is for increases around 2 percent in the long run.
Average snow cover in the contiguous U.S. from December through February was the 10th-largest for the period since 1966, according to National Oceanic and Atmospheric Administration data analyzed by the Rutgers Global Snow Lab. The northern and eastern U.S. faced above-average snowfall. Detroit had its snowiest winter on record, and New York, Philadelphia, Chicago and Boston each had one of their 10 worst.
Acceleration in economic growth going forward will depend on a pickup in consumer activity, which hinges on further labor market progress. Payrolls probably climbed by 215,000 workers in April after rising 192,000 in March, based on the median estimate in a Bloomberg Survey of economists. The Labor Department is scheduled to release payroll data May 2.
Unemployment stood at 6.7 percent last month, unchanged from the prior month, and economists project that it eased to 6.6 percent in April.
Fed officials are looking at labor market progress as they cut their bond buying program. The central bank’s decision is due at 2 p.m. in Washington. Policy makers are forecast to reduce their asset buying program to $45 billion per month, based on the median forecast in a Bloomberg survey of economists. In March they cut purchases to $55 billion, the third $10 billion reduction.
At the same time, the Fed has pledged to keep interest rates near zero until the jobless rate falls further and inflation rises toward 2 percent.
Growth will pick up to 2.7 percent pace for all of 2014 after gaining momentum following the first-quarter slowdown, based on a Bloomberg survey of economists earlier this month.
Capital spending by companies could be a driver of that pickup. Orders for durable goods, those meant to last at least three years, poured into American factories in March, a Commerce Department report showed this month. The advance was broad-based, with makers of computers, machinery and metals among those benefiting.
Amway Corp., an Ada, Michigan-based direct seller of items including nutritional supplements and beauty products, is among companies investing in the U.S. It is spending $332 million in research and development and expansion globally by 2015, including $197 million in investment at four U.S. locations in Michigan, California and Washington.
“We are still optimistic about the U.S. and where the U.S. is heading,” Chairman Steve Van Andel, who is also chairman of the U.S. Chamber of Commerce, said in an interview.