WASHINGTON (AP) — The U.S. economy grew more slowly in the first three months of this year. Governments spent less, and businesses cut back on investment. But consumers spent at the fastest pace in more than a year.
The result suggests that the economy will continue to expand, slowly but steadily.
The Commerce Department estimated Friday that the economy grew at an annual rate of 2.2 percent in the January-March quarter, compared with a 3 percent rate in the final quarter of 2011. But growth is expected to rebound to around 3 percent for all of 2012 as stronger job growth spurs more consumer spending.
Consumer spending accelerated to an annual rate of 2.9 percent in the first quarter. The strength came from a second robust quarter of growth in auto purchases.
Here’s what The Associated Press’ reporters are finding:
More Growth, More Jobs
How weak was the economy’s 2.2 percent growth rate from January through March? It depends.
Consider that a growth rate of 2.5 percent or higher is considered good when the economy is healthy. But not at a time of high unemployment.
With 12.7 million people unemployed, today’s economy needs much faster growth to boost hiring. Growth would have to be roughly 4 percent for a full year to lower the unemployment rate, now 8.2 percent, by 1 percentage point.
Pressure on Congress
There may be a bright side to the weaker-than-expected growth in the January-March quarter: It could push Congress to reach a budget deal before the end of the year.
Otherwise, automatic tax increases and spending cuts would send the nation over a “fiscal cliff” and drastically weaken economic growth, according to Bank of America.
“Lawmakers need a reminder that they must reduce the fiscal drag,” says Ryan Sweet, senior economist at Moody’s Analytics.
Saving Less of What We Earn
The increase in consumer spending comes with a caveat: People spent more in part because they socked away less.
After-tax income grew at an annual rate of 2.8 percent from January through March. That was about the same pace as in the final three months of last year.
But over the same period, the savings rate fell to 3.9 percent of after-tax income, down from 4.5 percent.
Economists worry that people won’t keep spending more unless their income grows.
Housing Perking Up
One surprising bright spot in the first quarter’s data: housing.
Spending on home construction and renovations rose by the most in nearly two years. Some of that gain was likely fueled by the warm winter. Many construction projects are usually put on hold when building sites are covered with snow and ice. That didn’t happen so much this winter.
Housing is expected to contribute to growth this year for the first time since 2005.
First Draft of History
Friday’s GDP report is just the initial estimate for first-quarter economic output. As is customary, the government will update its estimate in May and June.
And then in July, the first-quarter numbers will be tweaked yet again. That’s when the government will revise its estimates of growth from 2009 through the first quarter of this year.