Strong dollar, bad weather and ports dispute make perfect storm that dents US growth, consumer spending slows

How happy are US retailers and their customers feeling at the moment? Not very, if the latest set of figures on the economy are anything to go by. The Commerce Department delivered a surprise set of numbers Wednesday with the weakest growth in a year and slowing consumer spending.

So what was the reason? Well, the Commerce Department didn’t specify but it doesn’t take a genius to work out that some pretty rough weather earlier this year can’t have helped shoppers feel good about buying spring fashion product.

OK, let’s get down to the numbers: Gross domestic product (GDP) expanded just 0.2% year-on-year in the quarter, the weakest reading in a year, a big dip from the 2.2% rise in Q4.

As far as the overall figures were concerned, a strong dollar, lower energy prices, and a now-resolved West Coast ports dispute also hurt growth, the government said.

Analysts had forecast the economy expanding at a 1%.

Thankfully, there are signs the economy is pulling out of the soft patch, but don’t expect a spending boom just yet – data on home building, manufacturing retail, sales and business investment suggest the rebound will lack the vigour seen last year when the economy snapped back after also being blindsided by cold weather.

The government did not quantify the impact of the weather, the strong dollar and the ports disruptions on growth last quarter. But we can always rely on analysts to do the adding for them and they estimated that unusually cold weather in February cut as much as half a percentage point, with the port disruptions shaving off a further 0.3 percentage point.

While the West Coast ports issue caused major problems as far as getting goods to stores at the right time was concerned, it was the weather impact was the big factor in the retail weakness. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.9% rate. That was the slowest in a year and followed a healthy 4.4% pace in Q4.

That slowdown came even though households enjoyed huge savings from a big drop in gasoline prices as consumers boosted their savings to $727.8bn from $603.4bn in Q4. Nobody knows what the effect would have been if gas prices were still high.

And prospects for the future? While much of Europe is ‘enjoying’ and exports and tourist boost from the weak euro, the dollar, which gained 4.5% against the currencies of the US’s main trade partners in Q1 weighed on trade during Q1. And it’s expected to remain an economic headwind in the quarters ahead. Economists estimate it will reduce growth by 0.6 percentage point this year.

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