National News

April 26, 2013

US economy accelerates at 2.5 percent rate in Q1

WASHINGTON — 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 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.

 

1
Text Only
National News
  • 10 Things to Know for Monday

    Your daily look at late-breaking news, upcoming events and the stories that will be talked about Monday:

    April 20, 2014

  • Ukraine, Russia trade blame for shootout in east

    Within hours of an Easter morning shootout at a checkpoint manned by pro-Russia insurgents in eastern Ukraine, Russia’s Foreign Ministry issued a statement blaming militant Ukrainian nationalists and Russian state television stations aired pictures of supposed proof of their involvement in the attack that left at least three people dead.

    April 20, 2014

  • In West Bank, teen offenders face different fates

    The boys were both 15, with the crackly voices and awkward peach fuzz of adolescence. They lived just a few minutes away from one another in the West Bank. And both were accused of throwing stones at vehicles, one day after the other.

    April 20, 2014

  • Study: Fuels from corn waste not better than gas

    Biofuels made from the leftovers of harvested corn plants are worse than gasoline for global warming in the short term, a study shows, challenging the Obama administration’s conclusions that they are a much cleaner oil alternative and will help combat climate change.

    April 20, 2014

  • Fracking foes cringe as unions back drilling boom

    After early complaints that out-of-state firms got the most jobs, some local construction trade workers and union members in Pennsylvania, Ohio and West Virginia say they’re now benefiting in a big way from the Marcellus and Utica Shale oil and gas boom.

    April 20, 2014

  • In Colorado, a pot holiday tries to go mainstream

    Once the province of activists and stoners, the traditional pot holiday of April 20 has gone mainstream in the first state in the nation to legalize recreational marijuana.

    April 20, 2014

  • ‘Capt. America’ tops box office for third week

    Captain America continues to vanquish box office foes, triumphing in ticket sales for the third consecutive week and dominating over megastar Johnny Depp’s new movie.

    April 20, 2014

  • Probe could complicate Rick Perry’s prospects

    Texas Gov. Rick Perry has spent a record 14 years in office vanquishing nearly all who dared confront him: political rivals, moms against mandatory vaccines for sixth graders, a coyote in the wrong place at the wrong time.

    April 20, 2014

  • NASA’s space station Robonaut finally getting legs

    Robonaut, the first out-of-this-world humanoid, is finally getting its space legs.

    April 19, 2014

  • Documents detail another delayed GM recall

    Government documents show that General Motors waited years to recall nearly 335,000 Saturn Ions for power steering failures despite getting thousands of consumer complaints and warranty repair claims.

    April 19, 2014