US economy barely grows in Q1

U.S. economic growth almost stalled in the first quarter this year, as slumping exports and private investment weighed on growth of personal consumption amid the brutally cold weather, renewing concerns that the economic recovery remained on a fragile footing. The real gross domestic (GDP) increased at an annual rate of 0. 1 percent during January-March, sharply down from a growth of 2.6 percent in the proceeding period, the slowest pace since the end of 2012, U.S. Commerce Department announced on Wednesday. The severe winter weather early this year has prompted economists to lower their growth forecast, but Wednesday's data was still much lower than expected. Even so, economists expected the weak data was temporary, and the economy would regain momentum after the weather warms up. PRIVATE INVESTMENT, EXPORTS TUMBLE Personal consumption rose three percent, slightly down from a growth of 3.3 percent in the fourth quarter last year. The robust growth was driven by rising expenditure on health care, housing and utilities. Spending on services barely grew. Although personal consumption is the main engine of U.S. economy as it accounts for about 70 percent of overall economic activity, its solid growth in the first quarter was counterbalanced by slumping private investment and widening trade deficit. Exports tumbled 7.6 percent after gaining 9.5 percent in the previous quarter. Exports of goods dwindled 12 percent, while that of services went up three percent. Imports fell 1.4 percent. As a result, trade deficit shaved growth by 0.83 percentage point. Private domestic investment fell 6.1 percent after increasing 2. 5 percent in the proceeding period, with non-residential investment down 5.7 percent and residential investment down 2.1 percent. The negative impacts of government spending cut continued to wan after a 16-day partial government shutdown at the end of last year. Government's total spending and investment fell 0.5 percent in the first quarter, much smaller than a decrease of 5.2 percent in the previous quarter. Federal government spending increased 0.7 percent, compared with a severe contraction of 12.8 percent in the previous quarter. State and local government spending fell 1.3 percent. TURNAROUND IN SIGHT The Commerce Department said Wednesday's advance estimate was based on incomplete source and data. A revision will be released on May 29. Even so, many economists expected the weak data was distorted by the severely cold weather, and the economy would rebound as the weather ended. Paul Ashworth of Capital Economics estimated that growth in the second quarter would pick up to an annual rate of 3.5 percent before settling down to three percent for the year. Mark Zandi, chief economist at Moody's Analytics, believed the job market would improve across all industries and company sizes after the harsh winter. Economists' view was supported by a string of upbeat data showed in March, with manufacturing activities, retail sales, personal income and spending, and inventory building expanding at brisk pace. Job market continued to improve, with 192,000 non-farm jobs were created in March. Economists predicted the payroll data for April, which will be released on Friday, will continue to grow robustly. But fundamental weakness remained, as the real estate market softened although the harsh weather ended. Sales of existing home and new home grew less than expected in March, dragged by rising prices and higher mortgage rates. Also on Wednesday, the Federal Reserve decided to continue reducing the amount of money it is pumping into the recovery since May, as it sees consistent improvement in the overall economy. "Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," according to a statement released after a meeting of its Federal Open Market Committee. The monthly bond purchase will be reduced by 10 billion U.S. dollars to 45 billion dollars since May. Fed reaffirmed that a highly accommodative stance of monetary policy remains appropriate in a longer term, even after the employment and inflation situation are near mandate-consistent levels. A YEAR OF BREAKTHROUGH? President Barack Obama had asserted in his State of the Union Address that 2014 will be a "breakthrough year" for the U.S. economy. The Economic Report of the President, which is the annual flagship economic evaluation paper released by the White House in March, said the U.S. economy has fared better than most other developed countries in recent years, as it is one of just two countries in which output per working-age population has returned to pre-crisis levels. Even so, many challenges remain including recent weather- related disruptions and some turbulence in emerging markets, the report noted. "However, cyclical developments like diminished fiscal headwinds and an improvement in household finances are likely to contribute to a strengthening of the recovery in the near-term," it said. Emerging structural trends like the decline in the rate of health care cost growth, the surge in domestic energy production, and continued technological progress will support growth on a sustained basis into the future. Obama stressed the first and most immediate imperative is to continue to restore the economy to its full potential. He has been eyeing on a stronger middle class and pushing forward major legislation such as immigration reform, hiking the minimum wage to spur long-term growth. But those proposed bills face stiff opposition in a highly- divided Congress in a year of congressional election, restricting the growth potential and complicating the outlook.