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US Economy Weakest in 2 Years, Grows by 0.5%
World Economy

US Economy Weakest in 2 Years, Grows by 0.5%

The US economy inched forward at the weakest pace in two years from January through March, as consumer spending growth slowed, business investment plunged and exports declined further.

The gross domestic product, the broadest measure of economic health, grew by a tiny 0.5% in the first quarter, the Commerce Department reported Thursday. That is down from 1.4% growth in the fourth quarter, AP reported.

The January-March performance was the poorest showing since GDP contracted by 0.9% in the first three months of 2014.

Since this recovery began almost seven years ago, GDP has been weak in the first quarter each year only to rebound in the spring. Economists are looking for a similar pattern this year, forecasting second quarter growth of around 2%.

The year got off to a rocky start, with troubles in China causing a nosedive in global financial markets. A steep plunge in oil prices have also triggered more cutbacks in the US energy sector.

The headwinds led economists to slash their forecasts for first quarter growth, and the Federal Reserve slowed its pace for raising interest rates.

For the first quarter, consumer spending, which accounts for 70% of economic activity, grew at a 1.9% rate. That’s down from 2.4% in the fourth quarter and the weakest showing in a year.

  Deficit Factor

Oil Business investment dropped at a 5.9% rate, the biggest quarterly plunge since the depths of the recession in 2009. The decline was led by a record 86% plunge in the category that covers oil and gas exploration. US energy companies have cut back sharply in response to falling global oil prices.

Adding to the weakness, the rise in the value of the dollar over the past year hurt exports and drove up the trade deficit. The higher deficit subtracted 0.3 percentage point from growth in the first quarter. A further slowdown in business spending to restock their store shelves also trimmed 0.3 percentage point from growth in the first quarter.

The Federal Reserve, wrapping up two days of discussion on Wednesday, took note of weak spots in the US economy and decided for the third straight meeting to keep its key policy rate unchanged in a range of 0.25% to 0.5%. The Fed said that “economic activity appears to have slowed,” citing a moderation in consumer spending and weakness in business investment and exports.

The first quarter slowdown followed by a second quarter rebound has become a regular feature of this economic expansion, which began in June 2009.

GDP growth has averaged a paltry 0.8% in the first quarter over the past six years while second quarter growth has averaged 3.1%, nearly four times faster.

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