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Economic News May Slow Interest Rate Hike
Friday, May 1, 2015 6:30 AM

Amid the Federal Open Market Committee meeting taking place with the Federal Reserve Board, the Commerce Department stated the U.S. economy slowed sharply at the start of the year as businesses slashed investment, exports tumbled, and consumers showed signs of caution, marking a return to the uneven growth that has been a hallmark of the nearly six-year economic expansion.

Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 0.2 percent seasonally adjusted annual rate in the first quarter. The economy advanced at a 2.2 percent pace in the fourth quarter and 5 percent in the third.

Economists surveyed by The Wall Street Journal had expected growth of one percent in the first three months of this year.

The first-quarter figures repeat a common pattern in recent years: one or two strong readings followed by a big slowdown. Before this year, first-quarter GDP growth had averaged 0.6 percent since 2010 and 2.9 percent for all other quarters. That’s worked out to moderate overall expansion but no sustained breakout for the economy.

The report showed consumer spending, which accounts for more than two-thirds of economic output, decelerated to a 1.9 percent pace in the first quarter, down from 4.4 percent growth in the fourth quarter.

Another key driver of the economy, business spending, has also faltered. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—retreated at a 3.4 percent rate, compared with a 4.7 percent rise in the fourth quarter.

A stronger dollar, meanwhile, has made domestically produced goods more expensive overseas and foreign products cheaper inside the U.S. Combined with disruptions at West Coast ports, trade was constrained. In the first quarter, exports fell at a 7.2 percent rate, compared with 4.5 percent growth in the fourth quarter. Imports rose 1.8 percent, compared with 10.4 percent in the fourth quarter.

The price index for personal consumption expenditures, the Federal Reserve’s preferred measure for inflation, declined at a 2 percent annual rate, well below the central bank’s 2 percent inflation target. Core prices, which exclude volatile food and energy components, were up 0.9 percent, the lowest level since 2010.

 

Source:  Commerce Department, 29 April 2015