Economic growth falls to anemic 0.1 percent

 

The economy expanded at a 0.1 percent annual rate in the first quarter, a much slower pace than expected and the worst showing since the end of 2012, the Commerce Department said Wednesday.

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Economic growth fell from 2.6 percent for the final three months of 2013 and was well below the 1 percent forecast made by economists.

The report showed that business investment took a hit, falling at a 2.1 percent rate, and the housing market struggled to gain any ground during the winter months.

The slowdown adds to concerns for Democrats and the White House, who are in danger of losing their Senate majority in this fall's midterm elections. 

Some observers blamed colder than expected winter weather for putting growth in a deep freeze and predicted economic growth would be stronger the rest of the year.

Mark Zandi, chief economist at Moody’s Analytics, said the weather, the expiration of emergency unemployment benefits, slower inventory accumulation and a drop in exports were all contributing factors to the poor showing.

Consumer spending, which accounts for 70 percent of economic activity, grew at a 3 percent rate, but most of the spending went toward paying higher power bills generated during the frigid winter.

The 7.6 percent drop in exports and the expanding trade deficit cut 0.8 percentage point from growth, while businesses slowed their inventory accumulation, which was also a significant hit to gross domestic product, cutting it by nearly 0.6 percentage point.

Zandi said the economy has shed the weight of tax increases and is already shaking off the effects of the first quarter drag.

He expects to see a more robust housing sector, especially in the construction of new homes, business investment and job growth that will continue for the next couple of years.

A separate report released by Zandi and ADP showed that private-sector job growth hit 220,000 in April.

The new monthly average will run from 200,000 to 225,000 as the economic growth improves, Zandi predicted.

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