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Economy Barely Grew in First Quarter

The American economy slammed on the brakes in the beginning of 2014, as weaker exports and
lower spending by businesses essentially brought growth to a standstill.
At 0.1 percent, the pace of expansion in January, February and March was the slowest since late
2012, and revealed another one of the periodic pauses in the growth that has characterized the
slow recovery of the last five years.
Many experts had predicted a slowing in the first quarter of 2014, especially in the wake of
more robust growth in the second half of 2013 and very cold weather in January and February,
but the figures released by the Commerce Department on Wednesday morning were still
drastically below the 1.2 percent rate of expansion that Wall Street had been expecting.
Still, the sources of weakness were somewhat different than experts had foreseen, and there
were signs that underlying economic activity was at least slightly more encouraging than the
overall number would seem to suggest.
For example, personal consumption spending rose by 3 percent, a respectable increase that was
only slightly below the pace of consumer activity late last year.
But that jump was swamped by a 7.6 percent drop in exports and a 5.5 percent fall in spending
on equipment by businesses. Companies also bolstered inventories at a slower rate than they
did in the fourth quarter, which shaved nearly 0.6 percentage point off total growth.
This is certainly a mediocre report but not as terrible as the headline looks, said Guy Berger,
United States economist at RBS. Final domestic demand is growing at the same pace as it did in
the fourth quarter, and consumer spending was much better than we had thought.
Excluding the effects of trade and inventory adjustments, final sales to domestic purchasers rose
at a rate of 1.5 percent in the first quarter of 2014 versus. 1.6 percent in the final three months
of 2013, Mr. Berger noted.
Much of the gain in consumer activity was spurred by higher spending on health care services
and utilities, Mr. Berger added. While the utility increase is easily explained by the cold
temperatures, and thus higher heating bills, Mr. Berger traced the increase in health care
spending to the introduction of the Affordable Care Act.
Wednesdays report was the first of three estimates of growth by government statisticians, and
subsequent revisions could move the final figure up or down sharply as more data comes in.
Like many economists, Mr. Berger foresees a rebound in the economy over the course of 2014.
That is a prime reason the Federal Reserve is expected to announce another reduction in the
monthly bond purchases it has undertaken to stimulate the economy, as policy makers wrap up
a two-day meeting Wednesday afternoon.

Even if growth does pick up later this year, the rate will still most likely be below the postwar
average of just over 3 percent, said Dan North, chief economist at Euler Hermes North America,
a larger insurer.
Weve been living in sub-3 percent land, and people have gotten used to that as the new
normal, Mr. North said in an interview before the Commerce Department announcement. But
its not. Its anemic.
Wednesdays economic data kicks off a busy few days for economists and investors, and
American markets were little changed after the open. In addition to the Fed announcement, the
Labor Department will announce on Friday the latest figures on the job market in April. The
consensus calls for a jump in payrolls of 215,000, with the unemployment rate falling by 0.1
percent to 6.6 percent.
Indeed, on Wednesday, the payroll processor ADP said that American businesses increased
hiring in April, adding 220,000 jobs in April, the most since November and up from 209,000 in
March. The ADP numbers cover only private businesses and often diverge from the
governments more comprehensive report.
If the governments actual payroll gain meets or exceeds the consensus, it would be the best
month for hiring since November, and also echo some other more positive signs for the
economy in recent days, like healthy consumer confidence and strong orders for durable goods.