U.S. economy expected to rebound from slow first quarter

Frigid economic growth in the early part of the year is expected to heat up this quarter, according to experts analyzing the U.S. Commerce Department's latest GDP report.

The government reported Wednesday that real GDP -- the total output of goods and services produced in the U.S. -- rose a meager 0.1 percent over the first three months of the year. That's a sharp drop from the 2.6 percent rate in the final quarter of last year. Yet while the numbers badly undershot consensus forecasts of around 1 percent growth for the first quarter, many economists attributed the plunge to the harsh weather that affected large portions of the country this winter.

That suggests the economy should see considerably stronger growth in the current quarter and over the rest of the year.

"The unexpectedly weak 0.1 percent annualized gain in first-quarter GDP growth, which was markedly below the consensus forecast of a 1.2 percent gain, was principally due to the unusually severe winter weather," said Paul Ashworth, chief U.S. economist with Capital Economics, in a research note.

Growth was slower than expected mostly because companies bought less equipment than economists had forecast and because federal spending rebounded more weakly than projected following a partial government shutdown last year, Ashworth explained.

Business fixed investment fell 2.8 percent, mainly due to a drop in corporate spending on information technology, according to the Commerce Department. Another major restraint on growth was U.S. exports, which fell 7.6 percent after strong gains last year. Imports also slipped amid weaker demand from Europe and Asia. Residential fixed investment declined 5.7 percent

One sign the economy is not headed for a slump: Consumer spending -- which accounts for roughly 70 percent of economic activity -- was up a healthy 3 percent, mostly due to higher spending on heating this winter and on health-care services related to the expansion of Obamacare. Personal income grew 3.5 percent, thanks in part to a 7.7 percent increase in government transfer payments tied to health-care reform.

Growth in April has been stronger, bolstering the view that the economy is likely to accelerate in the second quarter.

"We do not take this report as a serious representation of the state of growth in the economy," John Ryding and Conrad DeQuadros of RDQ Economics wrote in a note to investors. "Business equipment spending looks poised to rebound in the orders data and housing is expected to pick up. We believe that real growth will run ahead of 3 percent over the balance of the year."

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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