Tags: Economists | Fret | Spring | Swoon

Some Economists Fret About 'Spring Swoon'

Wednesday, 01 May 2013 09:02 PM

By Michael Kling

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The economy may face another "spring swoon" as it continues to face significant headwinds.

GDP increased at an annual rate of 2.5 percent in the first quarter, according to the Bureau of Economic Analysis. The figure disappointed many economists, who had expected GDP growth of at least 3 percent.

Government spending cuts have reduced economic growth in 11 of the last 13 quarters, and cut 0.65 of a percentage point off first quarter growth. Income tax rates for top incomes are up this year and, perhaps most disconcerting, the payroll tax cut has expired.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

Disappointing economic figures have damped speculation that the Federal Reserve will wind down its quantitative easing program. Although consumer spending and housing purchases have helped boost GDP, shrinking government spending at state and local levels, as well as federal budget cuts, have dragged on economic growth.

Once again, springtime seems to be cutting back the buds of winter's economic growth, notes The Economist. Employment growth averaged 208,000 in January and February, but numbers released in April reported only 88,000 new jobs in March. Retail sales and housing starts in March dropped.

Decelerating growth for the third year in a row has analysts scratching their heads, according to The Economist. Some theorize that government computing models are not correctly adjusted for seasonal changes.

Others point to bad luck. Disasters and financial disruptions like the Japanese tsunami and Greek bailout (the first one) occurred in spring. An early Easter, a cold spring, or fear from the Cyprus bailout may have been factors this spring.

"The global backdrop is still weak," Paul Ashworth, chief U.S. economist for Capital Economics, told CBS News. "Europe is in recession, and growth in China isn't great."

However, Ashworth doesn't believe the economy faces another spring swoon. Previous springtime slowdowns were due to disturbances like the eurozone debt crisis. This year gas prices are down and housing is rebounding, he points out.

"The economy is in a battle between fiscal drag on one side and monetary stimulus on the other," Jim O'Sullivan, chief U.S. economist for High-Frequency Economics, told CBS News. "Over time, the Fed is winning.

"There are negatives out there for sure, with foreign growth weak in Europe and the fiscal drag. But monetary stimulus is still substantial, the Fed is still easing and financial conditions are easing, so there are more pluses than minuses."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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