September 29, 2023

U.S. Economic Growth Slows to 1.8% Rate in Quarter

Total output grew at an annual pace of 1.8 percent from January through March, the Commerce Department said Thursday, after having expanded at an annual rate of 3.1 percent in the fourth quarter of 2010.

When the year first began, economists had been expecting a much more robust growth rate of about 4 percent, only to be barraged by bad report after bad report as the days wore on. Turmoil in the Middle East set off a jump in oil prices. Winter blizzards shuttered businesses and delayed construction, causing investments in nonresidential structures like office buildings to fall by 21.7 percent compared with an increase of 7.6 percent at the end of 2010. Imports, which are subtracted from output, surged, and military spending sank.

Still, economists expect many of these problems to fade later in the year. Last quarter’s dismal news was, hopefully, “a pause, not a trend,” said Kathy Bostjancic, director for macroeconomic analysis at the Conference Board.

Of these various economic menaces, the most enduring is probably higher commodity prices, which reduce the amount of pocket money that households and businesses have available to spend on other purchases and, in the case of companies, hires. Gasoline prices have shown little sign of falling in recent weeks, and have nearly neutralized the 2011 payroll tax cuts that were intended as a stimulus.

“Consumers are spending more, but it’s getting soaked up in higher gas prices and higher food prices,” the chief economist at RDQ Economics, John Ryding, said. “That’s not leaving nearly as much left over for discretionary spending.”

Declines in government spending will continue to drag on the economy throughout the year, as strapped state and local governments cut back and the federal government tries to cut down on nonmilitary spending. Last quarter’s steep drop in military spending, which tends to be volatile, will probably reverse itself later in the year, economists said.

Wall Street had little reaction to the report, with markets mixed.

The main sources of strength last quarter were an increase of inventories on stockroom shelves and higher business spending on equipment and software. Equipment and software purchases have grown for eight consecutive quarters, and have only recently been accompanied by strong hiring.

At an unprecedented news conference on Wednesday, the Federal Reserve chairman, Ben S. Bernanke, addressed concerns about sluggish growth so far this year.

 “Most of the slowdown in the first quarter is viewed by the committee as being transitory,” Mr. Bernanke said, referring to the opinions of the Fed’s Federal Open Market Committee, which sets interest rates. “That being said, we’ve taken our forecast down just a bit, taking into account factors like weaker construction and possibly just a bit less momentum in the economy.”

 Other economic reports in recent weeks have been relatively optimistic, including industrial production, corporate earnings and — finally — job growth. The nation’s employers added 216,000 jobs in March, the fastest growth since last spring when the federal government temporarily increased hiring for the decennial census. The job growth last quarter was spread throughout almost every sector.

“The broad set of labor market indicators still look good,” said Andrew Tilton, a senior economist at Goldman Sachs, which is forecasting that the economy will accelerate and expand at a 4 percent annual rate in the second quarter.

 Still, given the ground lost during the Great Recession, the economy has a long way to go before its job market and output are back on track and feeling healthy again. There are some fears that the slow growth in the first quarter may weigh on job growth going forward, since employment trends tend to lag what happens in the rest of the economy.

“Payroll growth may have a temporary wobble,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “This is not a fundamental shift in the path of recovery, but maybe a temporary distortion.”

Economists also played down the economic threat to the United States posed by Japan’s deadly earthquake and tsunami in March.

“It only happened at the very end of the quarter, and any disruptions to supply chains would take a few weeks to come through,” said Paul Dales, a senior United States economist at Capital Economics. “If there’s any effect it’ll happen in the second quarter, but the impact should be minimal.”

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