The U.S. economy slowed sharply in the first three months of the year as a severe winter reduced business activity, the trade deficit widened, and companies accumulated inventories at the slowest pace in almost a year, the government reported Wednesday. The sharp slowdown in gross domestic product (GDP), while worse than expected, is likely to be temporary as growth rebounds in the current quarter. The Commerce Department said GDP expanded at a 0.1 percent annual rate in the first quarter, the weakest pace since the end of 2012 and down sharply from a 2.6 percent rate in the fourth quarter of 2013. Economists expected growth to slow to a 1.2 percent rate in the January-March period. The slowdown was attributed partly to an unusually cold and disruptive winter, marked by declines in sectors including business spending and home building. Consumer spending grew at a 3 percent annual rate, but the gain was dominated by a 4.4 percent increase in spending on services, reflecting higher utility bills due to the severe winter. Spending on goods rose slightly. Business investment fell at a 2.1 percent annual rate, with spending on equipment plummeting at a 5.5 percent annual rate. Residential construction declined at a 5.7 percent annual rate. Housing was hit by winter weather and other factors including higher home prices and a shortage of available houses. A widening of the trade deficit—attributed to a sharp drop in exports—reduced GDP growth by 0.8 percentage point in the first quarter. Businesses also slowed inventory restocking, which cut GDP growth by almost 0.6 percentage point. The GDP slowdown is expected to be temporary, and recent data have suggested strength at the end of the first quarter. Economists say most of the factors that limited growth in the January-March period already have started to reverse. Most expect a strong rebound in growth in the second quarter, with GDP expanding at a 3 percent annual rate.
