US economic growth all but stopped in the first quarter, with gross domestic product expanding at an anemic annual rate of 0.1 percent, the slowest since the fourth quarter of 2012.
A new report from the Commerce Department said on Wednesday that the pullback was severe, down from the fourth quarter’s 2.6 percent pace.
Economists polled by Reuters had forecast growth to slow, but only to a 1.2 percent rate. Right on cue, many began to blame the slowdown on an “unusually cold and disruptive winter,” yet declines in sectors ranging from business spending to home building shows data unrelated to weather, which were largely unaffected by weather. A pattern is beginning to emerge during the Obama years, which show a sharper final quarter growth rate only to disappoint at the start of the first.
The Commerce Department report was released just hours before the Federal Reserve ends its two-day policy meeting, and the private payroll processor, ADP, released a jobs report topping expectations.
The slowdown in US economic growth could have thrown a wrench in the Fed’s plan to push a message that the economy is getting stronger, as it is set to announce a they will reduce the amount of money it is pumping into the economy by printing money and monthly bond purchases known as quantitative easing.
While economists and the Fed will say they estimate weather could have taken off as much as 1.4 percentage points from US economic growth, no one can or will give details or specific data on the impact of the weather.
Bottom line, businesses were aggressively restocking in the second half of 2013 and accumulated $87.4 billion worth of inventory in the first quarter, which was the smallest amount since the second quarter of 2013.
That was down significantly from the $111.7 billion gathered up in the fourth quarter and resulted in manufacturers receiving fewer orders. Inventories shaved off 0.57 percentage point from GDP growth in the first quarter.
Trade was responsible for a lost 0.83 percentage point, as exports fell at a 7.6 percent rate in the first quarter after growing at a far better 9.5 percent pace in the final three months of 2013.
In total, inventories and trade were responsible for shaving off 1.4 percentage point from total GDP growth.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, actually increased at a 3.0 percent rate on services and expenses related to ObamaCare, or the Affordable Care Act. While a Morgan Stanley study found the cost of health care skyrocketing under the ACA, Americans are forced to spend more money on health care under ObamaCare, and the proof is in the data.
Still, consumer confidence is showing a shakiness in the first quarter.
Spending on goods fell sharply, which again is being blamed on cold weather, when likely health care costs are adjusting Americans’ spending habits. Consumer spending had increased at a brisk 3.3 percent pace in the fourth-quarter, prior to the premium increases hitting consumers in force.
Investment in home building contracted for a second straight quarter, as a rise in mortgage rates over the past year side-lined buyers and demonstrated a fundamental weakness in the housing markets.
A second quarter of contraction in spending on home building suggests a housing recession, which the U.S. central bank will be unable to ignore or spin.
