WASHINGTON — The U.S. economy nearly stopped growing in the January-March quarter, squeezed by a combination of factors that will either fade (a harsh winter) or persist (a stronger dollar).
Growth was a barely discernible 0.2 percent annual rate in the first quarter, the Commerce Department said Wednesday. That’s the poorest showing in a year and a sharp deceleration from a 3.6 percent rate in the second half of last year.
Most economists expect growth to rebound in the coming months as short-lived problems, such as a West Coast port strike, dissipate. But the rebound isn’t likely to be that healthy, as the high value of the dollar and other trends continue to weigh on growth. Several economists slashed their forecasts for the April-June quarter to 2.5 percent from roughly 3.5 percent.
“It’s hard to sugar-coat today’s number,” said Michael Feroli, an economist at JPMorgan Chase. “It was disappointingly soft.”
For the second year in a row, freezing temperatures and snowstorms delayed homebuilding, kept consumers away from shops and weighed down the economy. Ethan Harris, global economist at Bank of America Merrill Lynch, estimates it shaved 0.5 percentage points from growth. Consumer spending growth fell to just 1.9 percent, down sharply from 4.4 percent in the previous quarter.
Spending should rebound now that the snow has melted. Strong hiring and lower gas prices, compared with a year ago, should give Americans more spending power.
Exports of U.S. goods plummeted 13.3 percent, the most since the first quarter of 2009 during the depths of the recession. Imports rose slightly, widening the trade deficit and slashing 1.25 percentage points from growth. The strong dollar is partly to blame: It has jumped 19 percent since last June.
The dollar is expected to remain strong, given that the Federal Reserve likely will start raising short-term interest rates this year.
Goods and raw materials piled up in warehouses across the country at the fastest pace in more than four years. This trend actually added 0.74 percentage points to growth because companies had to produce those goods. Without the increase in stockpiling, the economy would have shrunk in the first quarter.
The big increase in inventories likely occurred because sales slowed. That means companies will focus on clearing their warehouses and store shelves in the coming quarter, reducing their need for new products.
