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U.S. economic growth slows significantly in first quarter

Commerce Department releases lackluster first quarter GDP data amid talk of Chinese economy surpassing the U.S.

The U.S. economy barely grew in the first quarter of 2014, with exports tumbling and consumer and business sentiment hit by a harsh winter, figures released Wednesday suggest.

The lackluster performance data comes amid suggestions that, by some measures, China will surpass the U.S. as the world's largest economy — potentially within the next few months. 

Gross domestic product (GDP) in the U.S. expanded at a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, the Commerce Department said on Wednesday. It represents a sharp pullback from the 2.6 percent pace of the fourth quarter of 2013.

Dean Baker, economist and founder of the Washington-based think tank the Center for Economic and Policy Research, told Al Jazeera he had anticipated a "1.5 percent or higher" growth figure.

Still, Baker explained, "it would be wrong to read too much into this.

"It's the same basic story of slow growth continuing and not that the economy is fundamentally slower," he said, explaining that growth tabulated last quarter is sometimes not counted in the following quarter. 

"The ships you record going out in December, you don’t record going out in January," he said.

The report showed that exports fell at a 7.6 percent rate in the first quarter after growing at a 9.5 percent pace in the final three months of 2013.

The apparent slowdown partly reflected an unusually cold and disruptive winter, marked by declines in sectors ranging from business spending to home building.

The Commerce Department's first snapshot of first-quarter growth was released just hours before the Federal Reserve wraps up a two-day policy meeting.

While harsh weather could partially explain the weakness in growth, the magnitude of the slowdown could complicate the U.S. central bank's message as it is set to announce a further reduction in the amount of money it is pumping into the economy through monthly bond purchases.

The first-quarter slowdown, however, is likely to be temporary, and recent data have suggested strength at the tail end of the quarter.

Economists estimate that severe weather could have chopped off as much as 1.4 percentage points from GDP growth. The government, however, gave no details on the impact of the weather.

Baker said that blaming the weather would be a "mistake."

"Residential construction figures were affected to some extent. None of those are a big drag," he said.

After aggressively restocking in the second half of 2013, businesses accumulated $87.4 billion worth of inventory in the first quarter, the smallest amount since the second quarter of 2013.

That was a moderation from the $111.7 billion amassed in the fourth quarter that has resulted in manufacturers receiving fewer orders. Inventories subtracted 0.57 percent from GDP growth in the first quarter.

Trade also undercut growth, taking off 0.83 percent, partly because of the weather, which left goods piling up at ports. 

Together, inventories and trade sliced off 1.4 percent from GDP growth.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.0 percent rate, reflecting a spurt in spending on services linked to the Affordable Care Act.

Spending on goods, however, slowed sharply, indicating that frigid temperatures during the winter had reduced foot traffic to shopping malls. Consumer spending had increased at a brisk 3.3 percent pace in the fourth quarter.

Harsh weather also undercut business spending on equipment.

While investment in nonresidential structures, such as gas drilling, rebounded, the increase was minor.

Investment in home building contracted for a second straight quarter, in part because of the weather. But a rise in mortgage rates over the past year has also hurt.

A second quarter of contraction in spending on home building suggests a housing recession, which could raise some eyebrows at the U.S. central bank. A bounce back is, however, expected in the April–June period.

China rising?

The lackluster figures come as China edges closer to the U.S.'s status of the world's leading economy.

Quantified by GDP, China's doesn't stand to overtake the U.S.'s for decades. But using figures recently released by the World Bank that measure purchasing power parity (PPP), the Chinese economy could surpass the U.S. economy "within the year," according to The Economist and the Financial Times.

PPP, unlike GDP, measures how much a set "basket" of consumer goods costs people living in a given country, and is often seen as a more accurate representation of China's economic growth, given a chronically wide gap between rich and poor. 

Still, PPP has its opponents as a solid measure of economic performance. 

"I’m not clear that’s meaningful — how do you compare living in San Francisco to anywhere in the world?" Baker said. 

Baker noted that China's economic growth has been concentrated in its major urban areas, where many enjoy a living standard more comparable to lower-GDP European nations than the U.S.

Al Jazeera and Reuters

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