MARTIN CRUTSINGER, AP Economics Writer
CHRISTOPHER S. RUGABER, AP Economics Writer
WASHINGTON (AP) — The U.S. economy inched forward at the weakest pace in two years from January through March, as consumer spending growth slowed, business investment plunged and exports declined further.
The gross domestic product, the broadest measure of economic health, grew by a tiny 0.5 percent in the first quarter, the Commerce Department reported Thursday. That is down from 1.4 percent growth in the fourth quarter.
Ian Shepherdson, chief economist at Pantheon Macroeonomics, said the GDP report “looks grim, but the second quarter will be much better.”
Since this recovery began almost seven years ago, GDP has been weak in the first quarter each year only to rebound in the spring. Economists are looking for a similar pattern this year, forecasting second quarter growth of around 2 percent.
The year got off to a rocky start, with troubles in China causing a nosedive in global financial markets. A steep plunge in oil prices have also triggered more cutbacks in the U.S. energy sector.
The headwinds led economists to slash their forecasts for first quarter growth, and the Federal Reserve slowed its pace for raising interest rates.
Adding to the weakness, the rise in the value of the dollar over the past year hurt exports and drove up the trade deficit. A further slowdown in business spending to restock their store shelves also trimmed 0.3 percentage point from growth in the first quarter.
The Federal Reserve, wrapping up two days of discussion on Wednesday, took note of weak spots in the U.S. economy and decided for the third straight meeting to keep its key policy rate unchanged in a range of 0.25 percent to 0.5 percent. The Fed said that “economic activity appears to have slowed,” citing a moderation in consumer spending and weakness in business investment and exports.
Some economists say they expect the Fed to wait until September or perhaps December before hiking again.
Forecasters are projecting the first quarter weakness will be followed by a rebound in the current April-June quarter although they are not expecting as big a bounce back as some years in part because of the headwinds currently facing the economy.
Applications for US Jobless Aid Rise From 4-Decade Low
The number of people seeking U.S. unemployment benefits climbed last week, but remained near the lowest level in four decades, a sign that the slumping economy isn’t boosting layoffs.
THE NUMBERS: The Labor Department says weekly applications for unemployment aid rose 9,000 to a seasonally adjusted 257,000. Applications fell in the previous week to the lowest since November 1973. The four-week average, a less volatile measure, dropped to 256,000 last week, also a 42-year low.
The number of people receiving aid slipped to 2.13 million, nearly 6 percent lower than a year ago.
THE TAKEAWAY: Applications are a proxy for layoffs, so the historically low levels are a reassuring sign that weaker economic growth isn’t panicking employers into cutting jobs.
Growth slowed to an annual pace of just 0.5 percent in the first quarter, the weakest pace in two years. That followed a weak showing of just 1.4 percent growth in the final three months of last year.
Yet low levels of applications indicate employers are cutting few jobs and probably still hiring. Applications have been below 300,000 for 60 straight weeks, the longest consecutive period since 1973.
KEY DRIVERS: Hiring has been solid in the first three months of the year, despite the slow growth. Employers added 215,000 jobs in March, and the unemployment rate was 5 percent, a healthy level historically.
The additional jobs should boost overall incomes in the coming months and buoy growth. Consumer spending grew at a 1.9 percent annual rate in the first quarter, a weak showing, but the slowdown mostly reflected a cutback in purchases of large manufactured goods, such as cars. Spending on services, which includes discretionary items such as restaurants, remained healthy.
Business investment slowed sharply, largely because of a sharp fall in spending on oil and gas drilling, reflecting lower energy prices.
Since the Great Recession ended seven years ago, growth has usually been weak in the first quarter, only to pick up in the April-June quarter. Many economists expect a similar pattern this year, and forecast growth will be 2 percent in the second quarter.
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