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U.S. economy grows at a glacial 0.1 percent

Despite economic growth stagnating, economists believe underlying fundamentals suggest that this year will see strong growth bolstered by improved job growth, rising consumer spending, and a rebound in business investment.

By Ananth Baliga
U.S. economy grows at a glacial 0.1 percent
The Commerce Department said the unusually cold and disruptive winter weather, coupled with tumbling exports, contributed to the decline in GDP growth. UPI/Kevin Dietsch | License Photo

WASHINGTON, April 30 (UPI) -- The U.S. economy seems to have felt the effects a harsh winter, weak exports and lower spending by businesses, which brought the economy to a near standstill.

The economy grew a meagre 0.1 percent in the first three months of the year -- the slowest pace since 2012. Economists had expected a slowing down in growth after the robust growth seen in the second half of 2013 and the cold weather in January and February. But Wednesday's numbers were drastically lower than the 1.2 percent growth Wall Street had been expecting.

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But the underlying numbers suggest that there is still some strength in the economy. The Commerce Department said that economic activity already appeared to be bouncing back.

“This is certainly a mediocre report but not as terrible as the headline looks,” said Guy Berger, U.S. 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.”

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While consumer spending grew 3 percent, exports dropped 7.6 percent, coupled with a 5.5 percent reduction in spending on equipment by businesses. Residential construction was understandably affected by the cold weather but was also affected by higher housing prices, falling 5.7 percent.

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Dropping exports widened the trade deficit to 0.8 percentage points in the first quarter. Cutbacks in state and federal spending offset a rebound seen after the 16-day federal government partial shutdown.

Consumer activity was spurred by higher spending on healthcare services and utilities. The higher utilities spending can be attributed to the cold weather, whereas the higher healthcare spending can be traced to the Affordable Care Act, according to Berger.

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Analysts had predicted that 2014 will be the year of strong growth, and that this growth will increase hiring and lower still-high unemployment.

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