US economy nearly stalls as weather and costs bite

US economic growth braked more sharply than expected in the first quarter, as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up.

GDP expanded at only 0.2% annually, the Commerce Department said yesterday, a big step down from the fourth quarter’s 2.2% pace and marked the weakest reading in a year.

A strong dollar and a now-resolved labour dispute at normally busy West Coast ports also slammed growth, the government said. The weak growth, though probably temporary, reduces the chances of a June interest rate hike from the Federal Reserve.

“A stalling of US economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed,” said Chris Williamson, chief economist at Markit in London.

In a poll, economists forecast the economy expanding at a 1% rate. The dollar fell to an eight-week low against a basket of currencies after the report. The yield on the benchmark 10-year US Treasury note retreated from a six-week high.

The sharp growth slowdown is probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.

Reuters