The U.S. Economy's Winter Nap Was Deeper Than We Thoughtby
The U.S. economy grew just 0.1 percent during the first quarter of the year, well below what were pretty weak expectations. The average forecast of economists surveyed by Bloomberg had called for a 1.2 percent increase. It’s the worst quarter of growth since the final three months of 2012, when the economy also notched a 0.1 percent growth rate.
While it may seem overly simple, the weather was clearly the biggest culprit in slowing the economy to start the year, with much of the country socked with record amounts of snow, sleet, and frigid temperatures—not conducive to going out and buying stuff. Some economists regard the slowdown as a natural “breather” from the robust second half of last year, when gross domestic product averaged 3.3 percent growth. Still, for the economy to essentially flatten out and register almost no growth took most by surprise.
Digging through the numbers reveals a few oddities; some can be explained by the bad weather, others cannot. Capital expenditures on durable goods fell and exports suffered a terrible $40 billion decline. Not sure how much you can blame that on the weather because it seems more a function of overseas demand than anything else.
Consumer spending, on the other hand, grew by more than 4 percent, the fastest pace since the second quarter of 2000. A lot of that came as a result of a big boost in utilities spending as people stuck at home in the cold had to crank up the heat. Expenditures on health care also jumped by $43.3 billion, adding about 1 percentage point to growth.
Government was again a drag on growth, as it has been for 12 of the last 15 quarters. The biggest drags came from state and local governments, as well as national defense spending. While the federal government added just 0.05 percentage points to growth, many economists thought its contribution would be greater, considering that the sequester was essentially cut in half by the Murray-Ryan budget deal late last year.
Here’s the good news: It’s likely that activity shut in by all the sleet and snow hasn’t been destroyed, just delayed. While the handoff will certainly be weaker than it would have been had weather not been a factor—and the economy has clearly lost much of the momentum it had at the end of 2013—some economists are boosting their estimates for second quarter growth in anticipation that people will spend money this spring that they didn’t spend over the winter.
Jacob Oubina, a senior U.S. economist at RBC Capital Markets, says his team has revised its estimate for second-quarter growth to 3 percent from 2.4 percent. Still, such poor growth in the first quarter does take a toll. RBC pushed down the estimate for total 2014 growth, from 2.5 percent to 2.2 percent.