The U.S. economy almost stalled early this year as consumer spending growth slowed, adding to the longstanding drags posed by sluggish exports and business investment.
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The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.4 per cent in the first three months of 2016, down from 0.6 per cent in the fourth quarter of a year ago. Real final sales to private domestic purchasers, about as core a measure of GDP as there is, increase 1.2% quarter-on-quarter, down from 2.0% in the fourth quarter of 2015, 3.2% in the third quarter of 2015, and 3.9% in the second quarter of 2015.
It reinforced what has become something of an annual economic rite in recent years – a weak first quarter, followed by optimistic predictions that a rebound was just around the corner. The same pattern occurred in both 2015 and 2014. This is the government’s first of three estimates for the quarter before annual revisions in July. A separate report from the Labor Department showed first-time applications for unemployment benefits rose less than expected last week and the four-week average of initial claims fell to its lowest level since 1973.
The economy was also blindsided by cheap oil, which has hurt the profits of oil field companies like Schlumberger and Halliburton, resulting in business spending contracting at its fastest pace since the second quarter of 2009, when the recession was ending.
Tepid consumer spending likely gave businesses more reason to place fewer orders for goods and ramp up efforts to reduce an inventory bloat.
The Commerce Department’s first estimate of GDP, to be followed by two more, should also be taken with a grain of salt because of persistent problems in adjusting data for seasonal effects in the first quarter, analysts said. Two more updates will issued over the next two months.
A sustained plunge in energy sector investment piled pressure on business spending. Imports, which are a subtraction in the calculation of GDP, increased. They boosted spending by a modest 1.9%, though much of the increase was on utilities and health care. That’s down from 2.4 percent in the fourth quarter and the weakest showing in a year.
“I don’t think it means the economy is in trouble”, said Paul Ashworth chief USA economist at Capital Economics in Toronto.
On the positive side of the ledger, residential investment jumped 14.8% as the housing recovery picked up steam. And once those homes are sold, homeowners need to buy plenty of consumer goods to furnish them, economists point out.
“It will be tough to swallow such a low first-quarter GDP print, but thankfully we should be quickly reminded of the strength and resiliency of the USA economy when the April nonfarm payroll report is released next Friday”, said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
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Month-on-month, services output edged up 0.1 percent, the same pace of growth as in January.
