The U.S. economy barely grew in the first quarter of 2014, eking out only a 0.1 percent gain, as the infamous polar vortex this winter chilled activity from construction sites to the malls.
The report of stifled growth from the Commerce Department on Wednesday showed that businesses spent much of the quarter trying to sell off an overhang of accumulated goods they acquired last year, further depressing growth. Without the runoff of inventories, growth would have been closer to 0.7 percent during the quarter.
Consumers seemingly did their part to keep the economy going, putting in a solid spending gain of 3 percent. But much of that increase was spent on the increased cost of heating their homes, as consumers dug in and stayed at home during the snowy and frigid weather. Health care spending also zoomed up as people signed up for insurance under the Affordable Care Act.
Nearly everything else — from exports and housing to state spending and business spending on plants and equipment — took a dive as the coldest winter in decades laid a frozen blanket over much of the Midwest, East Coast and South from January to March.
Signs are the economy picked up considerable speed after the cold weather ended this month, with idled sectors like retail and autos making a powerful rebound. Economists estimate the bounce back from the winter freeze will send growth back up to 3.5 percent or higher during the spring quarter.
Though the drop in growth from a 2.6 percent pace in the final quarter of 2013 was much bigger than expected, the Federal Reserve, Wall Street and many economists dismissed the significance of the report and blamed the weather.
"We already knew that quarter was basically one long snow day," said Justin Wolfers, economics professor at the University of Michigan.
"Here's why I'm not so worried," he said. "The components that are weak aren't persistent, while those that are strong tend to persist."
Wall Street stocks initially paused on the weaker-than-expected report, but rebounded by the end of the day on improving corporate earnings, with the Dow Jones industrial average rising to a new record high. The Dow closed up 45.47 points, or 0.3 percent, at 16,580.84, four points above its previous record, set Dec. 31.
In a sign that central bankers were not fretting that the economic stall would become life-threatening, the Fed said it would continue to slowly withdraw stimulus from the economy by cutting back further on purchases of U.S. Treasury and mortgage bonds, this time by another $10 billion to $45 billion a month. In a statement after a meeting of its rate-setting committee, the Fed took note of the sharp slowdown, but predicted that growth would rebound during the remainder of the year.
"Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the statement said.
"The committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually" for the rest of the year.
"The totality of recent evidence points to a swift and durable rebound in [gross domestic product] growth to above 2.5 percent starting in the second quarter," said Paul Edelstein, economist at IHS Global Insight.
"The notable exception is housing, which appears to be suffering from general supply-and-demand problems," he said. Housing investment fell 5.7 percent, in its second straight quarter of decline.
Mohamed A. El-Erian, chief executive of the Pimco bond funds, said he was also concerned about a drop of 2.8 percent in business investment during the quarter.
"A big snapback will be critical" this spring to reassure that the economy remains healthy, he said.
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