US economic growth slows to 0.2 percent in first quarter

As harsh weather conditions interrupt consumer spending and energy companies struggle with low prices, US economy nearly stalls

Photo by: TRT WORLD
Photo by: TRT WORLD

Updated Jul 28, 2015

World’s biggest economy barely grew in the first quarter, marking the weakest growth in a year. According to the US Commerce Department, gross domestic product (GDP) increased only 0.2 percent at an annual rate, falling harshly from the fourth quarter’s 2.2 percent growth.

However, according to analysts, the sharp slowdown in the economy can be a false reflection of the economy’s real stance, since temporary factors such as the weather plays a big role in the figures. While bad weather dampened consumer spending, conflict at West Coast ports caused shipment delays, affecting trade negatively. Economists estimate unusually cold weather in February cut off around half a percent, while the port disruptions shaved off a further 0.3 percent.

Consumer spending, which accounts 70 percent of the economy rose 1.9 percent, beating the expectations despite the weather conditions. Although the figure was more than expected, it marked a severe slowdown compared with last quarter’s 4.4 percent jump, which was the biggest increase since 2006.

Construction also took a strong hit from the weather, while falling oil prices caused a decrease in the domestic oil production, thus undermining business investment. Additionally, strong dollar affected the first quarter data, as well.

While there are signs the economy is recovering, figures on home building, manufacturing, retail sales and business investment signal the improvement will not be as fast as it was last year.

The first quarter growth figures were released just hours before the Federal Open Market Committee’s April meeting. Although the weak growth in the first quarter is considered to be temporary, it reduces the chances of a June interest rate hike from the US Federal Reserve (Fed). Investors are expecting the policymakers to acknowledge the slower than expected growth and awaiting the Fed to hike the interest rates not before September.

After the growth data, the dollar fell to the lowest levels of eight weeks against a basket of currencies, while the yield on the benchmark 10-year US Treasury note fell from a six week high. Stock-index futures extended earlier losses, as well.

TRTWorld and agencies