In The News

Economic Watch: First Quarter Growth Flat

The American economy picked up very little steam in the first quarter of the year, recording its weakest reading since the fourth quarter of 2012, according to a new U.S. Commerce Department report released Wednesday.

It advanced at an annual rate of 0.1% in this first of three readings and compares to a fourth quarter annual growth rate of 2.6%.

Personal consumption rose 3% at the start of the year, down just 0.3% from the rise at the end of 2013. The vast majority of spending was centered in services, up 4.4%, particularly health care and utilities services, as families struggled to heat their homes and combat the winter.

Goods purchases rose just 0.4% in the first quarter compared to a 2.9% rise at the end of last year. Goods exports fell 7.6% and service exports slowed 12%. Imports also fell, down 1.4%, the first quarterly decline in five quarters.

“This morning's report suggesting the U.S. economy stalled in the first quarter amid a significant decline in business spending, sizable drop in exports and reduced inventories,” said Lindsey Piegza, chief economist with the investment firm Sterne Agee. “Consumption, on the other hand continued to rise thanks to a significant pickup in services spending.”

She said while winter weather may have deterred shoppers from heading out to the stores to by electronics and apparel, consumers were busy spending elsewhere particularly on health care services and utilities to heat the family home.

“Going forward, the ability to maintain this level of 2% or better growth when it comes to personal consumption, be it on goods and/or services, will depend on subsequent job creation and income growth,” Piegza said.

She noted, at this point, businesses remain hesitant to grow or invest in anything from a new office space to updated equipment to a new employee, “a trend that has been in play well before this winter's arctic blast.”

Piegza believes from the Federal Reserve’s point of view, this morning's weaker-than-expected GDP report will not change the policy path. “The Fed will most likely focus instead on the recent rebound in several of the economic indications, painting a much rosier tone than last month's statement.”

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