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Sluggish economy expected to rebound in spring

WASHINGTON—The U.S. economy grew at a 2.4 percent annual rate last quarter, sharply less than first thought, in part because consumers didn’t spend as much as initially estimated.

Severe winter weather is expected to further slow the economy in the current quarter. But as temperatures warm, most economists think growth will rebound beginning in the spring.

The Commerce Department on Friday reduced its estimate of economic growth in the October–December quarter from an initial 3.2 percent annual rate. The revised estimate of 2.4 percent annual growth is the weakest quarterly showing since the first quarter of 2013.

A key reason for the downgrade was that consumer spending is now estimated to have expanded at a 2.6 percent annual rate, below the initial estimate of 3.3 percent though still the strongest quarterly spending by consumers in nearly two years.

Economists said the more sluggish pace of consumer spending resulted from bad weather at the end of the year, which cut into vehicle sales, among other purchases. But they pointed to one key point of encouragement in the report: The government’s estimate of business investment was revised up to an annual rate of 7.3 percent—the best quarterly showing in a year and sharply higher than the initial 3.8 percent annual rate.

Jennifer Lee, senior economist at BMO Capital Markets, said that while she expects bad weather to limit this quarter’s growth to a tepid annual rate of around 1.7 percent, she’s looking for a solid rebound for the rest of the year.

“Due to Mother Nature, quarter one is not going to be anything worth writing home about,” Lee wrote in a research note. “The rebound …and all of that pent-up demand won’t show up until the second quarter.”

In a separate report, the University of Michigan’s monthly index of consumer sentiment showed that while bad weather kept consumers away from retail outlets, it had not shaken confidence.

“Consumers have displayed remarkable resilience in the face of the polar vortex as well as higher utility bills and minimal employment gains,” said University of Michigan economist Richard Curtin.

Economists said steady consumer confidence supported their expectations for a rebound in spending once the weather improves.

The bad weather has squeezed retailers, forcing some stores to close. At one point in January, about 30 percent of Macy’s and Bloomingdale’s stores were shut. Home Depot Inc. estimated that it lost $100 million in January because of the bad weather.