The US economic recovery slowed to a crawl in the first quarter of 2014 as a frigid winter appeared to have taken its toll on business. But on the same day the news of the dismal growth was released, the Federal Reserve cut its economic stimulus programme, saying the recovery was now back on track.



The Commerce Department announced Wednesday that gross domestic product (GDP), the broadest measure of the value of goods and services, increased by a seasonally adjusted annual rate of just 0.1% in the first quarter. Economists had been expecting growth of closer to 1%.

The figures represent the Commerce Department’s first take on GDP for the three months from January to March and will be revised as more information becomes available. They come as the Federal Reserve ended its two-day meeting and announced another $10bn cut to its massive bond-buying economic stimulus programme, known as quantitative easing. The Fed will now spend a total of $45bn a month buying bonds in an effort to keep interest rates low and stimulate investment, down from a peak of $85bn each month.

The Fed said information it had received since its last meeting in March indicated that growth in economic activity had picked up recently after slowing “sharply during the winter in part because of adverse weather conditions.”

While the labor market indicators are still mixed and unemployment remains high, the Fed said there were further signs of recovery, and that household spending appeared to be rising more quickly.

US stock markets barely moved on the news, but Republican politicians attacked the White House over the slow pace of growth. House speaker John Boehner called the number “pitiful” and claimed Democrats’ attempts to raise the minimum wage would wipe out another 500,000 jobs.

Dan Greenhaus, chief strategist at broker BTIG, said the GDP figure was “not just worse than expected, it’s obviously terrible, but as we all know, it’s largely the weather. Importantly, consumer spending was fairly robust even as, expectedly, business spending was terrible and exports were even worse; the later subtracted almost a full percentage point from growth.”

Greenhaus pointed to the latest job survey released by ADP, the country’s largest payroll supplier, on Wednesday. According to ADP the US economy added 220,000 jobs in the private sector in April. ADP also revised March’s figure to 200,000, the first time since the end of 2012 that the company has recorded two consecutive months of job gains above 200,000.

Mark Zandi, chief economist of Moody’s Analytics, which helps compile the ADP report, said: "The job market is gaining strength. After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”

ADP’s results come ahead of Friday’s non-farm payroll report, the US government’s official tally of job gains. Economists forecast the bureau of labour statistics will report a gain of 215,000 in April, up from the 192,000 jobs added in March.

Capital Economics’ chief US economist Paul Ashworth had been expecting GDP growth of around 1.2%. He said the gap between the forecasts and the surprisingly weak figure was principally due to the impact of the winter’s severe weather, an unexpected 5.5% decline in investment in equipment and the complete absence of any rebound in government spending after the federal shutdown in the fourth quarter of last year.

“As the weather has returned to seasonal norms, we have already seen a marked improvement in the monthly data for March, which suggests that there will be a big rebound in second-quarter GDP growth,” he said.

The marked slowdown in the economy at the start of the year follows a pick-up in GDP during much of 2013. In the second half of last year, the economy expanded by 3.4%.

The Commerce Department report offers more evidence of how the bitterly cold winter hit the economy. With temperatures in some states at 30-year lows and snows reaching as far south as Atlanta, Georgia, consumers cut back.

According to the Commerce Department, consumer spending on goods rose a mere 0.4% during the quarter. Households spent more on services – including energy to heat their homes and healthcare, the latter of which may have been boosted by the implementation of the Affordable Care Act – causing total consumer consumption to rise 3.0%.

Businesses cut back in the first quarter, with spending on building, equipment and intellectual property down 2.1% compared to a 5.7% gain in the previous period. Exports fell 7.6% in the first quarter, the largest drop since the recession ended, as economic woes surfaced again in Europe and Asia.