- Posted April 29, 2013
- Tweet This | Share on Facebook
Economy accelerates at 2.5 pct. rate in first quarter
By Martin Crutsinger
AP Economics Writer
WASHINGTON (AP) -- U.S. economic growth accelerated to an annual rate of 2.5 percent from January through March, buoyed by the strongest consumer spending in more than two years. Government spending fell, though, and tax increases and federal budget cuts could slow growth later this year.
The Commerce Department said last Friday that the economy rebounded from an anemic 0.4 percent annual growth rate in the October-December quarter. Consumer spending surged at an annual rate of 3.2 percent -- its biggest 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 spending. The decline kept last quarter's increase in economic growth below expectations of a 3 percent rate or more.
Many economists say they think growth as measured by the gross domestic product is slowing in the April-June quarter to an annual rate of just 2 percent.
Most foresee growth remaining around that subpar level for the rest of the year.
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.
Across-the-board government spending cuts, which began taking effect March 1, have forced federal agencies to furlough workers, reduced spending on public projects and made businesses more nervous about investing and hiring.
Consumers' take-home pay has also fallen because President Barack Obama and Congress allowed a Social Security tax cut to expire. A person earning $50,000 a year has about $1,000 less to spend this year. A household with two high-paid workers has up to $4,500 less. Consumers' take-home pay is crucial to the economy because their spending drives roughly 70 percent of growth.
Americans appeared to shrug off the tax increase at the start of the year. They spent more in January and February, powered by a stronger job market.
But hiring slowed sharply in March. And consumers spent less at retail businesses, a sign that many were starting to feel the effects of the Social Security tax increase. Economists expect spending to stay weak in the April-June quarter as consumers adjust to smaller paychecks.
Ben Herzon, an economist at Macroeconomics Advisers, said the tax increases could shave roughly 1 percentage point from growth this year. He expects the government spending cuts to reduce growth by about 0.6 percentage point.
The drop in government spending cut growth in the January-March quarter by 0.8 percentage point. Three-fourths of that decline came from defense spending.
Already over the past two quarters, the decline in government spending has marked the sharpest six-month contraction since the Korean War ended in 1953, Capital Economics noted.
Income growth slowed sharply after a surge in the final three months of 2012. The fourth-quarter gain had reflected a rush to pay dividends and make bonus payments before higher tax rates took effect Jan. 1. Incomes were also held back last quarter by the higher Social Security tax.
The jump in consumer spending, along with slower income growth, meant that the saving rate fell to 2.6 percent of after-tax income in the first quarter. That was down from 4.7 percent in the October-December quarter.
The first-quarter growth figures will be revised twice more based on more complete data.
Published: Mon, Apr 29, 2013
headlines Oakland County
- Annual Meeting
- Board of Commissioners dedicates funding to complete $29 million in local Oakland County road projects
- Supreme Court leaves in place Avenatti conviction for plotting to extort up to $25M from Nike
- Washington Twp. man guilty of killing his wife
- ABA meeting tackles AI, other ethical issues in changing landscape of profession
headlines National
- This Los Angeles lawyer found her calling as a death doula
- ACLU and BigLaw firm use ‘Orange is the New Black’ in hashtag effort to promote NY jail reform
- Artificial intelligence tools for brief writing and analysis are a small firm litigator’s new best friend
- Baker McKenzie partner drops suit seeking IRS documents on partnership scrutiny
- Family members sue networks after learning of loved ones’ deaths by seeing bodies on TV
- Ex-BigLaw attorney once ‘consumed with remorse’ over $10M client theft sentenced in new scheme