Economic Growth in U.S. Probably Slowed by Harsh Winter Weather

The U.S. economy probably grew in the first quarter at the slowest pace in a year as harsh winter weather chilled consumers and businesses, economists project a report today to show.

Gross domestic product expanded at a 1.2 percent annualized rate from January through March after rising at a 2.6 percent pace in the previous three months, based on the median estimate of 83 economists surveyed by Bloomberg. It would be the weakest since the first quarter of 2013.

The pullback came as snow blanketed much of the eastern half of the country, keeping shoppers from stores, preventing builders from breaking ground and raising costs for companies including United Parcel Service Inc. (UPS) Retail sales, employment and manufacturing rebounded at the end of the quarter, which probably heralds a rebound in growth for the rest of 2014.

“This quarter reflects everything that’s been bad about the long and cold winter,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. “It betrays fairly strong underlying fundamentals that we believe continue to exist.”

The Commerce Department’s report is due at 8:30 a.m. in Washington. GDP estimates in the Bloomberg survey range from no change to an increase of 2 percent.

Average snow cover in the contiguous U.S. from December through February was the 10th-largest for the period since 1966, according to National Oceanic and Atmospheric Administration data analyzed by the Rutgers Global Snow Lab. The northern and eastern U.S. faced above-average snowfall. Detroit had its snowiest winter on record, and New York, Philadelphia, Chicago and Boston each had one of their 10 worst.

Retail Sales

The weather probably contributed to a setback in labor-market gains and restrained retail sales in January and February. Purchases jumped 1.1 percent last month after a 0.7 percent gain in February and a 0.7 percent decline in January, Commerce Department figures showed.

Consumer spending, which makes up about 70 percent of the economy, climbed at a 2 percent pace last quarter, down from a 3.3 percent increase in the October through December holiday period, based on the Bloomberg survey median.

Bad weather pushed up business costs for some companies, reining in output. The inclement conditions weighed on operating profit by $200 million at UPS, the world’s biggest package-shipping company said in a statement.

Challenging Quarter

“Clearly, the first quarter was a challenge,” D. Scott Davis, the chief executive officer, said on an April 24 earnings call. “The rest of 2014 looks quite promising. The economy, although it’s still not robust, it will be better than what we saw last year, both here in the U.S. and globally.”

Another report today will probably show employment has picked up following a winter lull. Companies added 210,000 workers to payrolls this month, the most since November, economists project a report from the Roseland, New Jersey-based ADP Research Institute to show at 8:15 a.m. in New York.

The economy should pick up from here, said Samuel Coffin, an economist at UBS Securities LLC in New York and the second-best forecaster of quarterly GDP in the last two years, according to data compiled by Bloomberg. He forecasts 0.5 percent growth in the first three months of the year, followed by 3.5 percent “or a little better” per quarter through the remainder of 2014.

An inventory build-up from the end of 2013 and an export slowdown probably dragged down the first quarter, he said. Fed officials will look beyond the paltry growth reading as they meet today in Washington, said Coffin.

Fed’s View

“They’d be willing to look through a temporary, export-related weakness,” Coffin said. Weather “is another reason the Fed will discount the headline.”

The central bank’s decision is due at 2 p.m. in Washington. Policy makers are forecast to reduce their asset-buying program to $45 billion per month, based on the median forecast in a Bloomberg survey. In March they cut purchases of Treasury and mortgage-backed securities by $10 billion to $55 billion.

“Most participants noted that unusually severe winter weather had held down economic activity during the early months of the year,” minutes from the Federal Open Market Committee’s March meeting said. “Participants expected economic activity to pick up as the weather-related disruptions to spending and production dissipated.”

Inclement weather may have slowed the housing market in the first quarter as frozen ground kept builders from starting work. The industry is already contending with falling affordability amid higher mortgage rates and home prices.

Housing starts averaged a 923,000 annualized pace in the first three months of the year, down from 1.01 million in the last three months of 2013, based on Commerce Department data.

                      Bloomberg Survey

=========================================================
                      ADP      GDP Personal   FOMC Pace
                  Payroll   Annual Consump.     Total
                   ,000’s     QOQ%     QOQ%     Blns
=========================================================
Date of Release     04/30    04/30    04/30    04/30
Observation         April     1Q A     1Q A    April
---------------------------------------------------------
Median                210     1.2%     2.0%       45
Average               208     1.2%     2.0%       45
High Forecast         250     2.0%     2.9%       45
Low Forecast          165     0.0%     1.6%       45
# of replies           45       83       26       45
Previous              191     2.6%     3.3%       55
---------------------------------------------------------
4CAST                 195     1.1%     ---        45
ABN Amro              225     1.5%     ---      ---
Action Economics      200     1.0%     ---      ---
Ameriprise            210     1.3%     1.9%       45
Banca Aletti         ---      1.4%     1.8%       45
Bank of the West      206     1.0%     ---        45
Bank of Tokyo        ---      2.0%     ---      ---
Banorte-IXE           200     ---      ---      ---
Bantleon Bank AG     ---      1.3%     ---        45
Barclays             ---      2.0%     2.0%     ---
Bayerische LB         200     1.8%     2.0%     ---
BBVA                  200     1.3%     1.6%     ---
Berliner Sparkass    ---      1.3%     ---      ---
BMO Capital           200     1.2%     ---      ---
BNP Paribas           215     1.0%     ---        45
BofA Merrill Lynch    210     1.2%     ---        45
Briefing.com          215     ---      ---      ---
Capital Economics    ---      1.5%     ---        45
CIBC                 ---      1.6%     ---      ---
Citi                 ---      0.9%     1.9%     ---
Comerica             ---      0.9%     ---        45
Commerzbank AG        200     1.0%     ---        45
Credit Agricole      ---      1.0%     2.3%       45
Credit Suisse        ---      1.0%     ---        45
Daiwa Securities     ---      0.7%     ---      ---
Danske Bank A/S      ---      1.0%     1.9%       45
DekaBank             ---      1.1%     ---        45
Desjardins Group     ---      1.2%     ---        45
Deutsche Bank         225     2.0%     ---        45
DZ Bank               215     ---      ---        45
First Trust          ---      0.5%     2.1%     ---
FTN Financial         225     1.0%     ---        45
Goldman, Sachs        220     1.0%     2.3%       45
Haitong Intl          198     1.9%     2.7%     ---
Heartland            ---      1.8%     ---      ---
Helaba               ---      1.0%     ---      ---
High Frequency        200     0.9%     ---        45
HSBC Markets          195     1.0%     1.9%       45
Hugh Johnson          181     1.6%     ---      ---
IDEAglobal            200     1.7%     2.0%     ---
IHS Global           ---      0.7%     ---        45
Informa               225     1.2%     ---      ---
ING                   220     2.0%     ---        45
Intesa Sanpaolo      ---      1.6%     ---        45
J.P. Morgan Chase    ---      1.1%     1.9%       45
Janney Montgomery    ---      1.0%     2.1%       45
Jefferies             195     1.8%     ---        45
JP Morgan Asset       233     0.6%     ---      ---
Landesbank BW         220     1.5%     ---      ---
Lloyds                215     1.6%     1.8%       45
Maria Fiorini        ---      1.2%     ---      ---
Market Securities    ---      1.1%     ---        45
MET Capital           220     0.6%     ---      ---
Mizuho                165     1.3%     ---      ---
Moody’s Analytics    ---      1.5%     ---      ---
Morgan Stanley       ---      1.0%     2.1%     ---
National Bank Finl   ---      1.0%     ---      ---
Nationwide           ---      1.1%     ---      ---
Natixis               201     1.0%     1.9%       45
Newedge              ---      ---      ---        45
Nomura Securities     220     0.9%     ---      ---
Nord/LB               200     2.0%     ---      ---
OSK-DMG              ---      1.4%     2.0%       45
Oxford Economics     ---      1.4%     ---        45
Pantheon              200     1.2%     1.8%       45
Pierpont Securities  ---      0.0%     ---        45
PineBridge            225     1.5%     ---        45
PNC Bank              170     1.8%     ---      ---
Prestige Economics   ---      1.5%     ---      ---
Raiffeisenbank        210     1.1%     ---      ---
Raymond James         215     0.8%     ---        45
RBC Capital          ---      1.7%     2.1%       45
RBS Securities       ---      0.6%     ---        45
Regions Financial    ---      1.6%     ---        45
Scotiabank            240     0.9%     ---        45
Societe Generale      220     1.1%     2.0%     ---
Southbay Research    ---      1.2%     ---      ---
Standard Chartered    210     1.4%     1.9%       45
Sterne Agee          ---      1.5%     1.7%       45
Stone McCarthy       ---      1.0%     ---      ---
TD Securities         250     1.4%     2.9%       45
UBS                  ---      0.5%     1.9%     ---
UniCredit Research   ---      1.7%     ---      ---
University of MD      199     1.0%     ---      ---
Wells Fargo & Co     ---      0.7%     ---      ---
Westpac Banking       185     1.2%     ---        45
Wrightson ICAP        205     1.1%     ---      ---
=========================================================

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle

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