U.S. economic growth decelerated sharply to the slowest pace in two years as consumer spending weakened, business investment plunged, and exports declined further due to the strong dollar, the government reported Thursday, although a rebound is expected in the current quarter amid strength in the labor market. The Commerce Department said gross domestic product (GDP)—the broadest measure of economic health—grew at an extremely weak 0.5 percent annual rate in the first quarter, the slowest pace since GDP contracted in the first quarter of 2014. GDP grew at a weak 1.4 percent rate in the fourth quarter. Since the recovery from the Great Recession began nearly seven years ago, GDP has been weak in the first quarter each year, only to rebound in the spring. Economists expect a similar pattern this year, forecasting second-quarter growth of about 2 percent. This year started with volatility, with economic problems in China causing a plunge in global financial markets. A steep decline in oil prices also prompted more spending cuts in the U.S. energy sector. Almost all sectors of the U.S. economy weakened in the first quarter, with the exception of the housing market. Consumer spending, which accounts for 70 percent of economic activity, grew at a 1.9 percent annual rate, down from 2.4 percent in the October-December quarter and the weakest performance in a year. Households have been cautious with their spending, despite cheap gasoline costs. Business investment fell by a 5.9 percent rate, the biggest quarterly drop since the peak of the recession in 2009. The decline was led by a record 86 percent drop in the category that covers oil and natural-gas exploration. Investment in equipment tumbled at an 8.6 percent rate, the steepest decline since early 2009. Adding to first-quarter weakness, the rise in the value of the dollar over the past year hurt exports and drove up the trade deficit. The higher trade imbalance subtracted 0.3 percentage point from GDP growth. A further slowdown in business spending to restock inventories also cut 0.3 percentage point from GDP growth. However, the slowdown likely is temporary because of a strong jobs market. Jobless claims are near a 43-year low, and employment gains averaged 209,000 jobs per month in the first quarter.
