Saturday, May 25, 2013
The Associated Press
WASHINGTON - The U.S. economy is looking slightly weaker one day before a critical report on May job growth.
Economic growth was a little slower in the first three months of the year than first estimated, largely because governments and consumers spent less and businesses restocked their supplies more slowly.
The number of people who applied for unemployment benefits rose to a five-week high last week. And a survey of private companies showed only modest hiring gains last month.
Still, a softer job market hasn't caused Americans to scale back spending. Consumers spent more at retail stores in May than the same month last year, buying more clothes and Mother's Day gifts.
The mostly disappointing data kept the Dow Jones Industrial Average on pace to record its first monthly loss since September. The yield on the 10-year Treasury note sank to 1.56 percent, a 66-year low.
Thursday's data showed that:
• The U.S. economy grew at an annual rate of 1.9 percent in the first three months of the year, the Commerce Department said in its second of three estimates of January-March growth. That's lower than its initial estimate of 2.2 percent.
• Weekly applications for unemployment aid rose 10,000 to a seasonally adjusted 383,000, the Labor Department said.
• Private businesses added 133,000 jobs last month, according to a survey by payroll provider ADP. That figure disappointed most economists, who had hoped to see job growth accelerate after ADP's survey found that just 113,000 jobs were added in April.
Peter Newland, an economist at Barclays Research, said he was discouraged by the slowdown in first-quarter growth.
"This report does little to change the perception of an economy ticking along at a moderate pace but failing to break out into a full-on recovery with consistently above-potential growth," Newland said.
When the government issues its report today on May employment, economists expect it to say that employers added 158,000 jobs. That would be better than in the past two months but far below the winter's pace of 252,000 jobs per month. They also expect no change in the unemployment rate, which was 8.1 percent in April.
The government makes three estimates of quarterly economic growth, or gross domestic product. GDP measures the output of all goods and services in the United States, from haircuts and coffee to airplanes and appliances.
A big reason growth slowed in the January-March quarter was that government spending at all levels fell at a 3.9 percent annual rate. That's the biggest decline in a year and nearly a full percentage point more than estimated last month.
Government spending has declined for six straight quarters. And national defense spending has tumbled in the past two quarters. It fell at an 8.3 percent annual rate in the first quarter of 2012 and at a 12.1 percent annual rate in the final three months of 2011. The declines largely reflect the winding down of the Iraq war.
Spending by state and local governments fell at a 2.5 percent annual rate in the first quarter, double the initial estimate. Many economists had thought the worst was over at the state and local level.
Historically, governments contribute to growth during recoveries. However, government spending at all levels fell last year, subtracting nearly a half of a percentage point from growth.
Joel Naroff, chief economist at Naroff Economic Advisors, said the economy would be growing at least a full percentage point faster if governments were spending at the rate they normally do three years into a recovery.
"Fiscal austerity comes at a price whether you are talking about the United States or Europe," Naroff said. "In the United States, we are taking moderate growth and turning it into sluggish growth."
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