US economy stalls in early part of year, harsh winter blamed

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US economy stalls in early part of year, harsh winter blamed

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The US economy barely grew in the first three months of this year, but that is being blamed on harsh winter weather, which hit everything from corporate spending to home building.

However analysts see growth returning as recent data suggested strength at the tail end of the quarter.

This first estimate of US economic expansion between January and March was way below forecasts at 0.1 percent, dramatically lower than the 2.6 percent in Q4 of 2014, and the 4.1 percent that preceded it in Q3.

Consumer spending, which accounts for more than two-thirds of US economic activity, did increase.

It was up by three percent, though much of that was from money going out on services with the start of the Affordable Healthcare Act.

Spending on goods slowed sharply – reversing a brisk increase in the previous quarter. That was due to frigid winter temperatures which means Americans stayed home rather than going shopping.

Winter blues

Trade also undercut growth, taking off 0.83 percentage point, partly because of the weather, which left goods piling up at ports. Exports fell at a 7.6 percent rate in the first quarter after growing at a 9.5 percent pace in the final three months of 2013.

Together, inventories and trade sliced off 1.4 percentage point from GDP growth.

Harsh weather also undercut business spending on equipment. While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor.

Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.

A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the US central bank. A bounce back is, however, expected in the April-June period.

with Reuters