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US Economy Nearly Stalls

US Economy Nearly StallsUS Economy Nearly Stalls

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.

Gross domestic product expanded at an only 0.2 percent annual rate, the Commerce Department said on Wednesday. That was a big step down from the fourth quarter’s 2.2 percent pace and marked the weakest reading in a year, Reuters said in a report.

A strong dollar and a now-resolved labor 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.

Economists polled by Reuters had forecast the economy expanding at a 1.0 percent 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.

The first-quarter GDP snapshot was released just hours before Fed officials conclude a two-day policy meeting. Policymakers at the US central bank are expected to acknowledge the softer growth, but shrug it off as temporary in a statement they will issue after their gathering. While there are signs the economy is pulling out of the soft patch, data on home building, manufacturing, retail sales and business investment suggest the rebound will lack the vigor seen last year when the economy snapped back after being blindsided by cold weather.

 

Financialtribune.com