The U.S. economy grew at a modest 2.4% annual rate from January through March, slightly slower than initially estimated. Consumer spending was stronger than first thought, but businesses bought less and some government spending cuts were deeper than previously estimated.
The Commerce Department said that economic growth in the first quarter was only marginally below the 2.5 percent annual rate the government estimated last month. “While not a quick recovery by any stretch of the imagination, the quarterly growth is still much faster than the 0.4 percent growth during the October-December quarter,” said Steve Picarillo, chief economic analyst at Creative Advisory Group, Inc. “It is likely that growth will slow to around a 2 percent annual rate in the April-June quarter, as the economy adjusts to ongoing federal spending cuts, higher payroll taxes and relentless global economic weakness. Nonetheless, the decline may not be as severe as we once thought. The US is recording solid hiring, surging home prices and record stock gains, all of which should keep consumers spending,” added Mr. Picarillo. Looking forward, Mr. Picarillo expects to see improving growth in 2014, especially should the job market accelerate and consumer confidence in the economy improve, but he cautions that the recovery remains on shaky ground, as such believes the clouds are on the horizon.
Consumer spending, which represents approximately 70% of GDP, shows Americans are adjusting to the increase in the Social Security taxes that has reduced most paychecks. More consumer demand could also encourage businesses to replenish inventory at a faster rate later this year. Business inventories grew in the first quarter, but at a slightly slower pace than first estimated.
The 2.4% annualized growth figure describes how much the economy would grow by if the growth seen in the quarter were maintained for the full year. It is the strongest rate of growth since the end of 2011, and much higher than the 0.4% annualized rate recorded in the last quarter of 2012.
“Surging stock prices and steady home-price increases have also allowed Americans to regain much of the wealth they lost to the recent recession. Higher wealth tends to encourage people to spend more,” added Mr. Picarillo.
“As expected, the weakest area of the economy continues to be government spending, which fell for the 10th time in the last 11 quarters. The 4.9 percent rate of decline was even larger than first estimated, reflecting further drops in defense spending and weaker activity at the state and local level,” Mr Picarillo continued. ”It is likely that government activity will be a drag on growth for the rest of the year given the government furloughs and spending cuts mandated by “the sequester”.
On the bright side, the housing recovery continued to gain steam. Home construction, one of the economy's top performers, grew at an annual rate of 12.1 percent in the first quarter, its third consecutive quarter of double-digit growth. Historically, a strong housing market trickles down to the greater economy.
“By comparison, the US has recovered relatively strongly from the global economic downturn, yet the near-term future is not as certain. The eurozone economy contracted by 0.2% over the same period, and there is not much hope for a quick turnaround on the other side of the Atlantic" concluded Steve. The weakness in the euro zone as well as the concerns discussed above in the US continues to threaten the strength of the recovery.
Steve Picarillo is an internationally known financial executive and author. Steve has spent most of his career on “Wall Street” as a lead analyst covering global financial institutions. Mr. Picarillo recently launched several businesses, including consulting services to large financial institutions, a cost savings consulting services focusing on small and mid-sized companies, and a franchise consulting business. Steve is also a branding expert, an expert on the global economic environment, and a motivational speaker.
To receive Steve’s blogs and articles, please send email to steve@creativeadvisorygroup.com with OPT IN as a subject.
Related websites include www.stevepicarillo.com, www.creativeadvisorygroup.com and www.creativefranchisegroup.com.
Company Name: Creative Advisory Group, Inc.Contact Person: Steve Picarillo
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Source: www.abnewswire.com
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