Tags: Economy | GDP | us | growth

US Economy Grows at Just 1.9%, Weaker Than First Thought

Thursday, 31 May 2012 08:48 AM

 

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The U.S. economy grew at an annual rate of 1.9 percent in the first three months of the year, slower than first estimated.

The Commerce Department on Thursday lowered its estimate for January-March growth from an initial estimate of 2.2 percent. The downward revision was largely because consumers spent less than first estimated, business restocked more slowly, and the U.S. trade deficit grew sharply.

Analysts believe the economy is growing at a slightly faster rate this spring. They estimate growth at an annual rate of between 2 percent and 2.5 percent in the April-June quarter. Many expect the economy will maintain that pace for all of 2012, an improvement from last year's 1.7 percent growth.

Still, growth of 2.5 percent is typically enough just to keep pace with population changes. Most economists say it takes almost twice as much growth to lower the unemployment rate by 1 percentage point over a year.

The government offers three estimates for gross domestic product. GDP is the output of all goods and services, which includes everything from haircuts and coffee to airplanes and appliances.

A rising trade deficit slows growth because the country is spending more on foreign-made products than it is taking in from sales of U.S.-made goods. Less restocking means companies ordered fewer goods, which decreases factory production and weighs on growth.

Economists expect growth to pick up slightly because of steady job growth and lower gas prices. Both allow consumers to spend more freely. Consumer spending drives 70 percent of economic activity.

And more demand from consumers leads businesses to step up restocking, which also boosts growth.

One fear is that Europe's debt crisis could deepen. It has already rattled U.S. financial markets. And it could further dampen demand for U.S. exports.

The unemployment rate has fallen a full percentage point since August — from 9.1 percent to 8.1 percent last month. Part of the season for the drop is that employers added 1.5 million jobs during that time. But it has also declined because some people have grown discouraged and given up looking for work. The government only counts people as unemployed if they are actively looking for a job.

Some fear that means the job market could be weakening. But economists have cautioned that a warm winter led companies to move up some hiring that normally wouldn't occur until spring. That gave the appearance that the economy had strengthened in January and February and weakened in early spring.

The government reports Friday on May job growth. Economists expect 158,000 jobs created, slightly better than the past two months but far below the winter's pace. They also expect no change in the unemployment rate.

One positive development this month: gas prices have fallen sharply.

A gallon of regular unleaded has dropped by 31 cents since peaking in the first week of April. U.S. retail gasoline prices fell by a penny Wednesday to $3.63 per gallon, according to auto club AAA.

Experts see gas falling to at least $3.50 by July 4.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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