April 26, 2013

Economy grew at 2.5% last quarter

Consumer spending surges at an annual rate of 3.2 percent, and growth is helped by a rise in home construction and business investments.

The Associated Press

WASHINGTON - After nearly stalling in late 2012, the American economy quickened its pace early this year despite deep government cutbacks. The strongest consumer spending in two years fueled a 2.5 percent annual growth rate in the January-March quarter.

click image to enlarge

In this Monday, Feb. 25, 2013 file photo, Jack Yonally rings out a customer at Lodge's store in Albany, N.Y. The Commerce Department issues its first estimate of how fast the U.S. economy grew in the January-March quarter on Friday, April 26, 2013.

2013 file photo/The Associated Press

click image to enlarge

A man examines the price tag on a motorcycle at the Dillon Brothers Harley Davidson dealership in Omaha, Neb. Americans appeared to shrug off a tax increase at the start of the year and spent more in January and February, powered by a stronger job market.

The Associated Press

The question is: Can it last?

Federal spending cuts, higher Social Security taxes and cautious businesses are likely to weigh on the economy in coming months.

Most economists say they think growth, as measured by the gross domestic product, is slowing in the April-June quarter to an annual rate of about 2 percent. Many predict growth will hover around that subpar level for the rest of the year.

Friday's Commerce Department report on GDP showed that consumers stepped up spending at an annual rate of 3.2 percent in the January-March quarter -- the biggest such jump since the end of 2010. Growth was also helped by businesses, which responded to the greater demand by rebuilding their stockpiles. And home construction rose further.

Government spending sank at a 4.1 percent annual rate, led by another deep cut in defense.

Sal Guatieri, senior economist at BMO Capital Markets, foresees more improvement in the second half of the year.

"The second-half acceleration will be supported by improved household finances, pent-up demand for autos and the ongoing recovery in housing," Guatieri said. "We are seeing significant housing-related consumer purchases in such areas as furniture."

GDP is the broadest gauge of the economy's health. It measures the total output of goods and services produced in the United States, from haircuts and hamburgers to airplanes and automobiles.

The government will provide two updated estimates of first-quarter growth based on more complete data. Whatever the revised data show, estimated first-quarter growth will likely remain far above the economy's scant 0.4 percent growth rate in the October-December quarter.

In a healthy economy, with an unemployment rate between 5 percent and 6 percent, GDP growth of 2.5 percent or 3 percent would be considered solid. But in today's still-struggling recovery, with unemployment at 7.6 percent, the economy needs faster growth to generate enough jobs to quickly shrink unemployment.

Since the Great Recession officially ended in June 2009, growth has remained weaker than usual after a severe downturn. That's because the recession followed the worst financial crisis since the Great Depression.

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