GDP sapped by export dip, oil slowdown

1st quarter’s 0.2% growth weakest in year; stocks slip

In this March 31, 2015 photo, Roy Livesey marks a pallet of 2x4's at the Allegheny Millwork and Lumberyard in Pittsburgh. The Commerce Department releases first-quarter gross domestic product on Wednesday, April 29, 2015.
In this March 31, 2015 photo, Roy Livesey marks a pallet of 2x4's at the Allegheny Millwork and Lumberyard in Pittsburgh. The Commerce Department releases first-quarter gross domestic product on Wednesday, April 29, 2015.

WASHINGTON -- The U.S. economy grew at a barely discernible annual rate of 0.2 percent in the first quarter, buffeted by slumps in business investment and exports and sharp cutbacks in oil and gas drilling, the Commerce Department reported Wednesday.

The government's first look at economic growth for the first quarter, as measured by the gross domestic product, was the poorest showing in a year and down from 2.2 percent growth in the fourth quarter of 2014.

"There's not a whole lot of momentum heading into the second quarter," said Mike Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. "We expect the economy to be better, but some of the details in this report are cautionary."

News of the GDP report sent stock markets lower Wednesday. The Dow Jones industrial average dropped 74.61 points, or 0.4 percent, to 18,035.53.

Plummeting exports pulled growth down by nearly a full percentage point. The category that includes investments in oil and gas exploration dropped 48.7 percent. Consumer spending slowed sharply as a severe winter kept shoppers home.

The first-quarter figure was much worse than economists had expected. But analysts are still looking for a solid rebound for the rest of the year, similar to what happened in 2014.

The economy contracted in the first three months of 2014, also because of a harsh winter. It was then followed by a strong rebound to growth of 4.6 percent in the spring and a jump of 5 percent in the third quarter.

Dan Greenhaus, chief strategist at BTIG, believes the first quarter will prove to be the year's low point, though he acknowledges that the momentum so far isn't as strong as last year.

"Admittedly, the data does not yet support the type of snapback seen in 2014 but more growth is better than less and we expect that to occur this year," he said in a note to clients.

The economy is being hurt by the rising value of the dollar, which makes exports more expensive on overseas markets and imports more attractive to U.S. consumers. For the first quarter, a widening trade deficit subtracted 1.25 percentage points from growth, with nearly 1 percentage point of the damage coming from a big drop in exports.

Business investment spending on equipment and structures fell at a 3.4 percent annual rate, in large part reflecting the nearly 49 percent drop in the category that includes oil and gas drilling. Energy companies have cut investments back sharply in response to the fall in oil prices over the past year.

Consumer spending, which accounts for 70 percent of economic activity, decelerated to a rate of just 1.9 percent in the first quarter, down from a 4.4 percent surge in the fourth quarter. It was the weakest gain in a year.

One bright spot is automobile demand. Sales of cars and light trucks rose to a 17.05 million annualized rate in March from 16.2 million the previous month, according to Ward's Automotive Group.

"Lower prices at the pump, improvements in employment, and overall positive consumer sentiment have driven greater demand for autos," Thomas Szlosek, chief financial officer at Honeywell International Inc., said on an April 17 earnings call.

Many economists forecast growth to rebound to around 3 percent in the current quarter and hold steady in the second half of the year. The International Monetary Fund earlier this month projected that the U.S. economy would grow 3.1 percent this year. While that is a half-point lower than its January forecast, it would still give the United States the strongest annual growth since 2005.

Some analysts say a solid second quarter is looking less and less likely.

"Given the fact the various regional purchasing manager surveys have been weak in April, it appears that producers will allow inventory positions to run off," Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in an email to clients. "This tells us that current-quarter growth is likely to run around 2.5 percent, not the 4 percent" previously anticipated.

Economists at Bank of America Corp. in New York reduced their growth estimate for this quarter to 2.5 percent from 3.5 percent after the GDP report. JPMorgan Chase & Co. economists left their estimate unchanged at 2.5 percent after cutting it from 3 percent after a weak March durable-goods report Friday.

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Shobhana Chandra, Chris Middleton and Matthew Boesler of Bloomberg News.

A Section on 04/30/2015

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