US economic growth slows sharply to 0.1% in first quarter

US economic growth slowed sharply in the first quarter of the year, growing at an annual rate of 0.1%.

The rate is the slowest for a year and a large fall on the 2.6% increase in gross domestic product (GDP) in the final quarter of last year.

An unusually cold and disruptive winter, coupled with tumbling exports, contributed to the decline, the US Commerce Department said.

But it said economic activity already appeared to be bouncing back.

Business investment fell by 2.1%, with spending on equipment plunging by 5.5% at an annual rate compared with a year earlier.

Residential construction, which was inevitably hit by the unusually cold winter fell by 5.7% although it was also hit by higher house prices and a shortage of available homes for sale.

The US trade trade deficit deficit widened, thanks to a sharp fall in exports which shaved growth by 0.8 percentage points in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage points.

But consumer spending - which drives 70% of growth in the US economy - grew by 3%, although the increase was dominated by a 4.4% rise in spending on services, reflecting higher utility bills during the bitterly cold winter.

Rebound

A cutback in spending by state and local governments also helped offset a rebound in federal activity after the 16-day partial government shutdown last year.

But most economists expect a strong rebound in growth in the April-June quarter. The consensus view is the economy will expand by 3% in the second quarter.

Analysts said stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.