US economic growth slowed to an annual pace of 0.5% during the first three months of the year.
That was a sharp fall from the 1.4% rate of growth in the last quarter of 2015 and the slowest pace in two years.
The slowdown, which was bigger than most economists forecast, has been blamed on a fall in domestic demand and a strong dollar that has put a brake on exports.
With shoppers buying less, businesses have been reluctant to order new stock.
Consumer spending, which accounts for more than two-thirds of the US economy, increased at a rate of 1.9%, down from 2.4% in the previous quarter.
Business investment fell by 5.9% – the biggest quarterly decline since the depths of the financial crisis in 2009.
Oil and gas exploration fell by a record 86% as energy companies cut back on spending following the dramatic slide in oil prices.
Although cheaper oil has given consumers more spare cash, it has also cut the profits of businesses dependent on the oil industry.
Most forecasters predict the US economy will bounce back in the next quarter, but Chris Williamson of Markit said his company’s own surveys showed only a weak recovery.
“Worryingly, the surveys indicate that the malaise affecting the US economy has extended into the second quarter, albeit with the pace of expansion picking up slightly to 0.8%. The surveys also show weakness spreading from manufacturing to services in recent months.”
Despite the economy slowing, unemployment fell below 5% in January, and Friday’s jobs report is expected to show steady growth in employment numbers.
On Thursday, the Federal Reserve said that “labour market conditions have improved further even as growth in economic activity appears to have slowed”.
