American economic expansion slowed to a crawl in the first quarter, but economists are hopeful that the setback will be temporary. Total output grew at an annual rate of 1.8 percent from January through March, the Commerce Department said Thursday, after expanding at a 3.1 percent pace in the fourth quarter of 2010.þþWhen the year began, economists expected a more robust growth rate of about 4 percent, only to be barraged by bad report after bad report. Turmoil in the Middle East led to higher oil prices, which had already been climbing because of increased demand in emerging markets like China. Housing sales dropped sharply. Winter blizzards closed businesses and delayed construction, causing investments in nonresidential structures like office buildings to fall 21.7 percent from the previous quarter. Imports, which are subtracted from gross domestic product, surged. Military spending sank.þþEconomists say many of these problems will fade later in the year and economic growth will hasten through the spring. Last quarter’s dismal news was, fingers crossed, “a pause, not a trend,” said Kathy Bostjancic, director for macroeconomic analysis at the Conference Board.þþThe American public seems less certain.þþEvery time the economy has appeared to be on the verge of taking off, prospects have been thwarted by troubles at home (like housing) and abroad (like the European debt crises last year). As a result, Americans seem to be tiring of predictions that things will pick up “soon.” A Gallup poll released Thursday found that 29 percent of Americans believed the economy was in a depression.þþ“The G.D.P. went up, and that’s all fine and good, but in the real marketplace that’s definitely not the case,” said Jeff Beatty, a 62-year-old information technology professional in Richmond, Ky. Despite applying for 214 jobs “across half of the country,” he said, he has been unable to find work for the last year.þþTo some extent these frustrations, and false starts in the economy, may have been predictable. Historical research by the economists Carmen and Vincent Reinhart has shown that economic recoveries after financial crises are always fragile and painfully slow. So even though the work-stopping blizzards of winter have passed, and export growth looks likely to pick up again, other obstacles may rock the remainder of the year.þþOf these various economic menaces, the most threatening is higher commodity prices, which reduce the amount of money that households and businesses have available to spend on other purchases and, in the case of companies, additional employees. Crude oil prices have risen 32 percent over the last three months and have shown little sign of falling in recent weeks. These increases, along with those on food and other goods, have nearly neutralized the 2011 payroll tax cuts that were intended as a stimulus.þþ“For rising prices of oil and gasoline, the main place it hurts the economy is the pain it puts on consumers, and we continue to monitor that impact,” said Austan Goolsbee, chairman of the president’s Council of Economic Advisers. He said he expected consumer spending to continue growing apace, however.þþDeclines in government spending will probably remain a drag on the economy throughout the year, as state and local governments cut back and the federal government tries to cut spending over all. Last quarter’s steep drop in military spending, a category that tends to be volatile, will probably reverse itself later in the year, economists said.þþInvestors largely shrugged off the report for the last quarter, with stock prices little changed on the day.þþThe main sources of strength last quarter were greater inventories on stockroom shelves and more business spending on equipment and software. Equipment and software purchases have grown for eight consecutive quarters and have only recently been accompanied by hiring strong enough to lower the unemployment rate.þþAt an unprecedented news conference on Wednesday, the Federal Reserve chairman, Ben S. Bernanke, addressed concerns about sluggish growth so far this year.þþ “Most of the slowdown in the first quarter is viewed by the committee as being transitory,” Mr. Bernanke said, referring to the opinions of the Fed’s Federal Open Market Committee, which sets interest rates. “That being said, we’ve taken our forecast down just a bit, taking into account factors like weaker construction and possibly just a bit less momentum in the economy.”þþ Several economic reports in recent weeks have been relatively optimistic, including industrial production, corporate earnings and — finally — job growth. The nation’s employers added 216,000 jobs in March, the fastest growth since last spring, when the federal government temporarily increased hiring for the decennial census. The job growth this year has been spread through almost every sector.þþ“The broad set of labor market indicators still look good,” said Andrew Tilton, a senior economist at Goldman Sachs, which is forecasting that the economy will accelerate and expand at a 4 percent annual rate in the second quarter.þþ Still, given the ground lost during the recession, the economy has a long way to go before its job market and output are feeling healthy again. There are some fears that the slow expansion in the first quarter may weigh on job growth, since employment trends tend to lag whatever happens in the rest of the economy.þþ“Payroll growth may have a temporary wobble,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “This is not a fundamental shift in the path of recovery but maybe a temporary distortion.”þþEconomists played down the economic threat to the United States from Japan’s deadly earthquake and tsunami in March.þþ“It only happened at the very end of the quarter, and any disruptions to supply chains would take a few weeks to come through,” said Paul Dales, a senior United States economist at Capital Economics. “If there’s any effect, it’ll happen in the second quarter, but the impact should be minimal.”
Source: NY Times
