The US Commerce Department attributed the stalling figure to the cold snap and weak exports, but the quarterly result was still weaker than preliminary estimates.
Contrary to “virtually every US economist in the world” the US economy once again failed to achieve an exit velocity at the start of the year, Jan Dehn, head of research at Ashmore Investment Management, said.
"This was due to a combination of inventory adjustment (which economists mysteriously missed) and a spell of bad weather (which was played up to cover up for the forecast error). Still, neither inventory corrections not winter weather are sustainable.”
He added that the US economy is expected to gradually pick up steam for the rest of 2014, but fairly modestly given the continuing burden of debt.
The surprise fall in business investment in equipment, along with a very modest rebound in government spending, contributed to the weaker market forecasts.
Feeble investment is fuelling concerns over the economic outlook for the rest of the year, according to Schroder’s chief economist, Keith Wade.
“The weakness in investment is more troubling as we look for capex to make a healthy contribution to GDP this year and so has thus made an abysmal start. There could be a timing issue here as the fourth quarter of last year showed a surge in spending and durable goods orders (a good leading indicator) have firmed recently.”
Wade pointed towards the brighter consumer spending figures, which rose at a 3% pace, driven primarily by Obamacare which led to a sharp rise in healthcare spend.
However, Dehn believed households are still deleveraging – a key reason why US growth continues to lag behind – and as a consequence consumer demand is not responding in the usual way.
“We expect another two years of household deleveraging, but once it is finally over the US economy should be able to stage a more decent recovery, not least because of the relative health of US corporate balance sheets and the country’s solvent banking system.”
