U.S. First-quarter 2014 GDP Growth Slowed to 0.1% in as Poor Weather
Weighed on Activity
Location: Toronto
Date: 2014-04-30
- The first estimate of US first-quarter 2014 gross
domestic product (GDP) growth was 0.1%, which was down from the
2.6% and 4.1% increases in the fourth and third quarters of
2013, respectively, and well below market expectations for a
1.2% gain.
- The downward surprise on GDP growth was despite a
stronger than expected 3.0% jump in consumer spending
(expectations had been for a 1.9% increase) that marked little
moderation from the 3.3% increase in the fourth quarter of 2013.
- Providing offset, net trade and inventories subtracted
0.8 and 0.6 percentage points from first-quarter 2014 GDP
growth, respectively, while an expected rebound in government
spending failed to materialize with the component declining 0.5%
following a 5.2% plunge in the fourth quarter of 2013 related to
the partial shutdown of the federal government in October.
Private investment spending fell 2.8% with both residential
(-5.8%) and business investment (-2.0%) declining.
- Although notably below expectations, it remains the case
that much of the slowing in first-quarter 2014 growth likely
reflected the negative effect of a colder than normal winter
rather than deterioration in the underlying growth rate of the
economy, with some activity that otherwise would have occurred
in the first quarter likely just pushed into the second quarter.
Early indications, including acceleration in employment growth
in February and March, as well as a sharp bounce back in auto
sales in March, suggest that activity already began to
strengthen later in the quarter, which would be consistent with
our forecast that GDP growth will bounce back to above a 3% rate
in the second quarter of 2014. Given the likely effect of
weather on first-quarter 2014 growth, today’s report was still
unlikely to alter the stance of Fed policy. The central bank is
expected to announce another $10 billion reduction in its
monthly pace of asset purchases later today although the Federal
Open Market Committee (FOMC) is also expected to reiterate that
it is likely that the fed funds target will be maintained in the
current range of 0% to 0.25% “for a considerable time after the
asset purchase program ends, especially if projected inflation
continues to run below the Committee’s 2% longer-run goal.”
The first estimate of US first-quarter 2014 GDP growth was an
annualized 0.1%, well below 2.6% and 4.1% increases in the fourth
and third quarters of 2013, respectively, and market expectations
for a 1.2% increase. The downward surprise on GDP growth was despite
a stronger than expected 3.0% jump in consumer spending
(expectations were for a 1.9% increase) that marked little
moderation from the 3.3% increase in the fourth quarter of 2013.
Spending on goods increased just 0.4%, but offset was provided by a
4.4% jump in services spending. Providing offset to the gain in
consumer spending, net exports subtracted 0.8 percentage points from
growth after adding a percentage point in the fourth quarter of 2013
as a sharp 7.6% drop in exports outpaced a 1.4% decline in imports.
Inventories subtracted 0.6 percentage points from GDP growth and
private investment declined 2.8%, with both residential (-5.8%) and
non-residential (-2.0%) investment falling in the quarter. An
expected rebound in government spending failed to materialize with
the component declining 0.5% following a 5.2% plunge in the fourth
quarter of 2013 related to the partial shutdown of the federal
government in October.
Growth in the core personal consumption expenditure (PCE)
deflator, the key inflation indicator in today’s report, was 1.3% in
the first quarter of 2014, which was unchanged from the pace of
increase in the fourth quarter of 2013.
Although notably below expectations, it remains the case that
much of the slowing in first-quarter 2014 growth likely reflected
the negative effect of a colder than normal winter rather than
deterioration in the underlying growth rate of the economy, with
some activity that otherwise would have occurred in the first
quarter likely just pushed into the second quarter. Early
indications, including acceleration in employment growth in February
and March, as well as a sharp bounce back in auto sales in March,
suggest that activity already began to strengthen later in the
quarter, which would be consistent with our forecast that GDP growth
will bounce back to above a 3% rate in the second quarter of 2014.
Given the likely effect of weather on first-quarter 2014 growth,
today’s report was still unlikely to alter the stance of Fed policy.
The central bank is expected to announce another $10 billion
reduction in its monthly pace of asset purchases later today
although the FOMC is also expected to reiterate that it is likely
that the fed funds target will be maintained in the current range of
0% to 0.25% “for a considerable time after the asset purchase
program ends, especially if projected inflation continues to run
below the Committee’s 2% longer-run goal.”
Information contained in this report has been
prepared by the Economics Department of RBC Financial Group based on
information obtained from sources considered to be reliable. While
every effort has been made to ensure accuracy and completeness, RBC
Financial Group makes no such representation or warranty, express or
implied. This report is for information purposes only and does not
constitute an offer to sell or a solicitation to buy securities.
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