Analysts predicted that the United States would jump leaps and bounds in the first quarter of 2014. But, the sobering reality is that U.S. gross domestic product (GDP) grew by a mere one-tenth of a percentage. This is more than disappointing, because Q1 2014’s performance is a small fraction of Q4 2013’s. So, though GDP has increased, the rate at which it’s increasing is diminishing. Apparently, the ice-cold, snowy winter almost froze the nation’s growth.
Summit Place Financial Advisors’ Liz Miller is stunned by the first-quarter numbers: “It’s a shock. Given we’re 20 minutes into the market, everyone will sit back and say, let’s wait for a revision.”
Winter’s rigid weather left goods stuck at ports and, coupled with overseas economic slowdowns, exports plummeted. Not to mention, the wet weather hurt home building. Therefore, businesses decreased inventory and cut spending for equipment.
Consumers bought fewer goods, since, for a good majority of the time, the harsh weather held them hostage in their homes. What they did spend more on, however, was home heating, as well as medical services, thanks to the Affordable Healthcare Act.
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Now that winter snowstorms have turned into spring showers, analysts say that demand will bounce back and growth will pick up.
The GDP number came right on the heels of (literally hours after) the end of the Federal Reserve’s two-day meeting. Markus Schomer, Pinebridge Investments’ Chief Economist, claims that despite the weak data, the Fed’s bond purchase program won’t be thrown off course.
Schomer adds, “I’d be shocked if they take that number, [one] we all know is whacky, and base a momentous decision with implications for the financial markets on that very low-quality number.”
At the end of May, we’ll have a revised GDP estimate. But for now, this is what we have to work with.