US economic growth nearly stalled in the first quarter as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending.

Gross domestic product expanded at an only 0.2 per cent annual rate, the Commerce Department said on Wednesday. That was a big step down from the fourth quarter’s 2.2 per cent pace and marked the weakest reading in a year.

A strong dollar and a now-resolved labour dispute at normally busy West Coast ports also slammed growth, the government said.

While there are signs the economy is pulling out of the soft patch, the lack of a vigorous growth rebound has convinced investors the US Federal Reserve will wait until late this year to start hiking interest rates.

The recovery is the slowest on record and the economy has yet to experience annual growth in excess of 2.5 per cent.

“The US economy has yet to demonstrate the self-sustaining resilience that the Fed wants to see before raising interest rates,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

“A June liftoff is now off the table, our forecast for a September move holds but even that has become tenuous.”

Fed officials at the end of their two-day policy meeting on Wednesday acknowledged the softer growth, but shrugged it off as “in part reflecting transitory factors.”

The dollar hit a nine-week low against a basket of currencies. Prices for US Treasury debt fell in line with a global bond sell-off, sparked by a poorly received five-year German bond auction. US stocks were trading lower.

Economists had expected the economy to expand at a 1.0 per cent rate. The sharp growth slowdown is probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.

“The extent and depth of the weakness in today’s GDP report, sets the US up for another disappointing though somewhat better GDP report in the second quarter. We are not ready to throw in the towel for the year,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

The economy has had a jerky recovery from the 2007-2009 financial crisis, with the first quarter marking only the latest setback. The government did not quantify the impact of the weather, the strong dollar, lower energy prices and the ports disruptions on growth last quarter.

Economists, however, estimate unusually cold weather in February chopped off as much as half a percentage point, with the port disruptions shaving off a further 0.3 percentage point.

The weather impact was evident in weakness in consumer spending. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.9 per cent rate. That was the slowest in a year and followed a brisk 4.4 per cent pace in the fourth quarter.

Reuters