Washington – The broad-based economic recovery touted by the administration during last year’s election campaign sounds more like a political fairy tale when juxtaposed with the rate of economic growth this year.
U.S. gross domestic product (GDP) stalled last quarter at 0.1 percent while businesses gained stocks at the slowest rate in nearly a year.
The quarterly economic downturn made the anemic 2.6% increase posted in the last quarter of 2012 look robust and is considerably lower than the 1.2 %, slow down predicted by economists.
Analysts agree that particularly severe weather played a role in wiping out economic growth; however, the magnitude of the nation’s financial slowdown has raised skepticism over the integrity of the hard-to-notice economic recovery.
The news will weigh heavy on the US Central Bank’s talking points as it announces further reductions in the volume of money it will pump into the US economy in the form of monthly bond purchases. The Federal Reserve has pumped billions of dollars into the bond market during an extended and anemic financial recovery.
Optimistic analysts say a cold extended winter likely chopped 1.4% off GDP output and suggests the first-quarter stall is temporary. Additionally, the ADP National Employment Report showed 220,000 jobs were created in April and 209,000 in March. Other analysts point out that many of those jobs are low-paying part-time gigs.
Nevertheless, many analysts forecast stronger growth. “This weakness is not carrying through the second quarter,” said Gus Faucher, senior economist at PNC Financial Services in Pittsburgh.
Regardless of the reasons economic growth stalled this year, the downturn comes at a time when the price of gas at the pump has topped $4 per gallon in California and inflation has significantly drove up costs of groceries and other staples.
Adding to consumer woes is uncertainty about next year’s health insurance rates and deductibles under the so-called Affordable Health Care Act. Analysts say millions of Americans will begin to see significant premium increases for 2015 coverage later this year.
Businesses invested $111.7 billion in new inventory during the final three months of last year, but spent only $87.4 billion restocking inventory in the first quarter of 2014. The difference represents the largest cutbacks in business growth since the second quarter of 2013.
Spending on goods during the quarter dropped sharply, suggesting a severe winter had left shopping malls empty as consumers huddled in their homes rather than brave blizzards and black ice.
Meanwhile, business expenditures on equipment declined the most in five years.