The Commerce Department said the economy barely grew in the first quarter, with the nation's gross domestic product rising at a 0.1% annual pace. That's down from 2.6% growth in the fourth quarter and the weakest since late 2012.
Striking a more positive note, payroll processor ADP said businesses added 220,000 jobs in April, more than the median estimate of 200,000 in a survey by Action Economics. The economists surveyed also estimate that Friday's more closely watched employment report will show that the public and private sectors added a total 210,000 jobs last month, the most since last fall.
The solid ADP report added to a string of recent data — on employment, retail sales and industrial output — indicating that the economy bounced back in March after cold and snowy weather hampered activity in January and February.
"For the most part, (the weak first quarter) is old news," says economist Scott Hoyt of Moody's Analytics.
In a statement after a two-day meeting, the Fed said: "Economic activity has picked up recently after having slowed sharply during the winter in part because of adverse weather conditions."
Partly as a result, Fed policymakers agreed to continue to reduce — from $55 billion to $45 billion — monthly bond purchases that are intended to hold down long-term interest rates and spur growth. The central bank reiterated that it will keep its benchmark short-term interest rate near zero "for a considerable time" after it halts the purchases, stressing that it will wean the economy slowly from Fed support. Many Fed policymakers forecast the first rate hike in 2015, according to their March projections.
The economy's frailty in the first quarter was broad-based.
A measure of business capital spending that's critical to economic growth tumbl! ed 5.5%, far more than economists anticipated. Government spending fell 0.5% after declining 5.2% in the fourth quarter. Many economists expected a sharper rebound from October's federal government shutdown and increased state and local government outlays, rather than a 1.3% decline.
Weakness in other sectors was largely expected. Inventories were a drag on growth as businesses reduced stockpiling after aggressively replenishing shelves in the fourth quarter. Exports fell 7.6% as the economy slowed in China and limped along in Europe. Housing construction decreased 5.7%.
Several economists said the surprisingly weak first quarter portends even stronger growth ahead.
"As the weather has returned to seasonal norms, we have already seen a marked improvement (in March), which suggests that there will be a big rebound in second-quarter GDP growth," Capital Economics said in a research note.
Consumer spending was a surprising bright spot, rising at a 3% annual rate in the first quarter. Hoyt, however, noted that spending on services such as utilities and health care fueled the gain, while purchase of goods were weak, largely because of the weather.
Increased consumer spending and more business stockpiling should lead to a snap-back effect in the months ahead, he says. Hoyt expects growth to exceed 3.5% the rest of the year.
Barclays Capital economist Michael Gapen is more uncertain that the particularly weak first quarter will yield a stronger second quarter. He says the drop in business and government spending may have stemmed from factors other than the weather. Still, Gapen expects the economy to grow at a 3% annual rate in the current quarter.
Many analysts say growth will accelerate on rising household wealth and lower debt, along with easier bank lending standards and stronger business investment.
No comments:
Post a Comment