U.S. Economy Speeds Up, but Less Than Forecast

The American economy sped up in the first quarter of this year, with output expanding at an annual pace of 2.5 percent, according to a Commerce Department report released Friday. The number was lower than the 3 percent forecasters had been expecting.

While faster growth of any kind is welcome, much of the acceleration in gross domestic product was probably a result of unusually slow growth at the end of 2012, when the economy grew at an annual pace of just 0.4 percent. Growth in the fourth quarter had been dragged down by reduced restocking of businesses’ inventories, for example, and in the first quarter businesses made up for this by adding much more to their shelves.

Consumer spending was up too, despite fears that the lapse of the temporary payroll tax holiday at the start of the year would hold back how much consumers were willing to spend. It’s unclear whether consumers will continue to spend as freely in the months ahead, once they start to feel the pinch of this effective tax hike, particularly if wages continue to stagnate.

Exports, residential investment (housing, essentially) and business spending on equipment and software also rose.

Economists have expressed concern that the pace of growth may have started out strong in 2013 but slowed by the end of the first quarter, given recent disappointing reports about economic indicators in March. Employment slowed dramatically in March, for example, and orders for durable goods like aircrafts fell more than analysts had expected.

Additionally, across-the-board federal spending cuts, enacted as part of Congress’s so-called sequester, are likely to weigh on growth going forward. In the first quarter of this year, government spending fell at an annual rate of 8.4 percent, after a decrease of 14.8 percent in the fourth quarter of 2012.

“With fiscal tightening weighing on the spring and summer quarters, we expect weaker growth ahead,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers, said in a note to clients said before the report. “We have seen good quarters before, but what counts is sustainability, and on that score we are deeply unconvinced.”

Article source: http://www.nytimes.com/2013/04/27/business/economy/us-economy-grew-at-2-5-rate-in-first-quarter.html?partner=rss&emc=rss