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US GDP crashes to 0.1% in snowbound Q1

by David Campbell on Apr 30, 2014 at 14:12

US GDP grew just 0.1% in the first quarter, the slowest rate of growth since the end of 2012, deeply disappointing expectation of 1.2% and down from 2.6% in the final three months of 2013.

Economists had estimated that the bitterly cold winter would knock 1.4% from quarterly GDP – deferring activity which, at least partially, should be carried through to the second quarter.  

‘As the weather has returned to seasonal norms, we have already seen a marked improvement in the monthly data for March,’ said Paul Ashworth, chief US economist at Capital Economics.

Of the 52 US snow storms since 1952 which earned the classification ‘high impact’ – which measures the number of people impacted in addition to their severity – five occurred during this winter.

Much of the difference between forecast and actual growth was due to an unexpected 5.5% fall in capital investment however, and no gain in government spending following the Q4 shut down.

Consumption growth surprised on the upside at 3%, boosted by a 4.4% gain in spending on services related to the Affordable Care Act prompting many to buy insurance policies.

‘That will generate another big gain in spending at the start of the second quarter too,’ added Ashworth. ‘Overall, disappointing news on first-quarter GDP growth, but it was principally due to the weather.

‘We anticipate that second-quarter GDP growth will rebound to 3.5% and we don't expect these figures to affect the pace of the Fed's QE taper, particularly not when conditions in the labour market appear to be strengthening.’  

Meanwhile David White, a trader at Spreadex, said the data will test bulls' confidence but drew comfort from the fact the Dow was holding firm at the 16,530 level in the minutes after the opening bell.  

'Since the equity market is hardly in freefall as a result of the number, investors might take solace from the crowd that the consequences of the event aren’t yet biting,' White said.  

'But the session is far from over yet, and traders will likely be more vigilant of taking on risk today than most others, waiting to see how flows direct prices.'  

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