WASHINGTON: The United States’ economic growth braked more sharply than expected in the first quarter of this year (1Q15), as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up.

Gross domestic product (GDP) expanded at an annual rate of only 0.2%, the Commerce Department said yesterday. That was a big step down from a 2.2% pace in 4Q14 and marked the weakest reading in a year.

A strong US dollar and a now-resolved labour dispute at normally busy West Coast ports also slammed growth, the government said.

Economists polled by Reuters had forecast the economy expanding at a 1% rate. While the weak GDP figures could rattle financial markets, the slowdown in growth is probably not a true reflection of the economy’s health, given the role of temporary factors, such as the weather and the port disputes.

The first-quarter GDP snapshot was released just hours before US Federal Reserve (Fed) officials concluded a two-day policy meeting. Policymakers of the central bank are expected to acknowledge the softer growth but to shrug it off as temporary in a statement they will issue after their gathering.

While there are signs the economy is pulling out of the soft patch, data on home building, manufacturing, retail sales and business investment suggests the rebound will lack the vigour seen last year, when the economy snapped back after being blindsided by cold weather.

At the start of this year, many economists believed the Fed would raise interest rates from near zero in June. Now, most of the guessing centres around September.

The government did not quantify the impact of the weather, the strong US dollar and the port disruptions on growth in 1Q15. Economists, however, estimated unusually cold weather in February chopped off as much as half a percentage point (ppts), with the port disruptions shaving off a further 0.3 ppts.

The weather impact was evident in weakness in consumer spending. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.9% rate. That was the slowest in a year and followed a brisk 4.4% pace in 4Q14.

The sharp moderation in consumer spending came even though households enjoyed huge savings from a big drop in gasoline prices. Consumers boosted their savings to US$727.8 billion from US$603.4 billion in 4Q14. — Reuters

This article first appeared in The Edge Financial Daily, on April 30, 2015.