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US GDP Stalls in First Quarter

Posted by Joseph Trevisani on Apr 30, 2014 12:27:00 PM

Blame the weather. That is the nearly universal rationale for the near stall in Amercian economic growth in the first quarter.

Annualized GDP in the first three months of the year was just 0.1 percent compared to 2.6 percent in the fourth quarter, said the Commerce Department in Washington today.  The surprising result was far below the 1.2 median estimate.

For all of 2013 GDP climbed 1.9 percent after a 2.8 percent gain in 2012.

Household consumption increased at a 3 percent annual pace, boosted by utility costs associated with freezing weather and rising health care spending stemming from the new health care mandates.

Many analysts are blaming the harsh winter in the Eastern half of the country for keeping customers from stores, but that does not jibe with the strong gain in consumer spending. It seems more likely that instead of making the trip to the mall  consumers stayed home and did their  shopping online.

The relatively strong job creation in February and March (192,000, 197,000) and Friday's expected 210,000 new hires, will probably give the Fed enough comfort to continue the reduction in its securities purchase program. The FOMC is expected to announce another $10 billion reduction its securities purchase program to $45 billion at 2:00 pm today. The private payroll company ADP also reported a better than forecast 220,000 additions to its rolls in April

Business investment fell at a 2.1 percent annual  pace in the first quarter, the first drop in a year and a reversal of the fourth quarter's 5.7 percent gain. Exports shrank at a 7.6 percent rate. 

Whatever the particulars of this report and the revisions to come, economic growth this slow in the first quarter makes 3.0 percent for the year almost impossible.  Even if the remaining three quarters averaged 3.0 percent, growth for the full year would still  only be 2.3 percent.

The signs for long anticipated breakout year for the U.S economy are good deal less positive than they were before 8:30 am.

gdp99

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

Chart: FX Street

 

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