(Corrects ninth paragraph to show ADP report was for April)
* First-quarter growth slows sharply to 0.1 percent rate
* Exports, inventories take a bite out of GDP growth
* Consumer spending up solidly, healthcare a boost
By Lucia Mutikani
WASHINGTON, April 30 The U.S. economy barely
grew in the first quarter as the severe winter hampered exports
and led businesses to curtail investment spending, but activity
already appears to be bouncing back.
Gross domestic product expanded at a 0.1 percent annual
rate, the slowest since the fourth quarter of 2012, the Commerce
Department said on Wednesday.
"This quarter was impacted heavily by the weather. Growth is
down, but not out, not by a long shot, and we look for it to
quicken later on in the spring," said Chris Rupkey, chief
financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
The slowdown, which also reflected the slowest inventory
accumulation in nearly a year, was much sharper than Wall Street
had braced for. Economists expected a 1.2 percent gain.
It suggested the economy could struggle to achieve the 3
percent break-out growth that had been widely anticipated this
year, but did little to alter forecasts for coming quarters.
U.S. stocks were little changed after opening lower on the
report. Prices for U.S. government debt were up, while the
dollar fell against a basket of currencies.
The government's first snapshot of first-quarter growth was
released just hours before the Federal Reserve wraps up a
two-day policy meeting.
With growth pinned down by temporary factors, Fed officials
are likely to brush aside the slowdown and focus on other data
that has suggested strength at the tail end of the quarter.
Separate reports on Wednesday showed private employers added
220,000 workers to their payrolls in April, while business
activity in the Midwest hit a six-month high, with new orders
surging and employment rising.
Still, the magnitude of the slowdown could complicate the
U.S. central bank's message as it sets to announce a further
reduction in the amount of money it is pumping into the economy
through monthly bond purchases.
NO FUNDAMENTAL WEAKNESS
"Our bet is that the weakness we saw in the first quarter
is more transitory than fundamental, with a heavy dose of
weather distortions," said Diane Swonk, chief economist at
Mesirow Financial in Chicago.
Economists estimate severe weather could have chopped off as
much as 1.4 percentage points from GDP growth. The government,
however, gave no details on the impact of the weather.
Businesses restocked inventories to the tune of $111.7
billion in the final three months of last year, but added only
$87.4 billion more to stocks in the first quarter, the smallest
amount since the second quarter of 2013.
The slowdown in restocking subtracted 0.57 percentage point
from GDP growth in the first quarter, but inventories should be
a boost to second-quarter growth.
"It looks like most of the inventory correction will be
contained in the first quarter," said Daniel Silver, an
economist at JPMorgan in New York.
Trade lopped off 0.83 percentage point from growth, partly
because of the weather, which left goods piling up at ports.
Exports fell at a 7.6 percent rate, the largest quarterly
decline in five years, after growing at a 9.5 percent pace in
the final three months of 2013.
A measure of domestic demand that strips out exports and
inventories expanded at a 1.5 percent rate and there were
virtually little signs of inflation pressures.
Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, increased at a 3.0 percent rate,
reflecting a spurt in spending on services linked to demand for
heating and the Affordable Healthcare Act, which expanded
healthcare coverage to many Americans.
Spending on services grew at its quickest pace since the
second quarter of 2000, with healthcare contributing a solid
1.10 percentage points to GDP growth.
Spending on goods, however, slowed sharply, indicating that
the frigid temperatures had reduced foot traffic to shopping
malls. Consumer spending had increased at a brisk 3.3 percent
pace in the fourth-quarter.
Harsh weather also undercut business spending on equipment,
which fell at its fastest pace in nearly five years. While
investment in nonresidential structures, such as gas drilling,
rebounded, the increase was minor.
Investment in home building contracted for a second straight
quarter, another sign of the hit from the weather, although a
rise in mortgage rates over the past year has also hurt.
A second quarter of contraction in spending on home building
suggests a housing recession. A bounce back, however, is
expected in the April-June period.
"The technical recession in housing is a major yellow flag
in terms of the strength of the domestic economy. It will be
while before the Fed starts raising interest rates," said Brian
Bethune, chief economist at Alpha Economic Foresights in Boston.
(Reporting by Lucia Mutikani; Additional reporting by Richard
Leong; Editing by Andrea Ricci)