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U.S. growth slows to 2.2 percent in first quarter
Growth in the U.S. economy slowed to 2.2 percent in the first quarter from 3 percent at the end of last year, even as unusually mild winter weather gave a strong boost to consumer spending and car sales, the Commerce Department reported Friday morning.
The growth slowdown primarily was due to lower spending by businesses on inventories and capital equipment. Consumer spending picked up to a robust 2.9 percent pace, led by the fastest growth in auto sales in four years.
It was a particularly strong quarter for the auto industry. Increased production of cars and trucks accounted for half of the economy’s output gains during the quarter. Exports also picked up by 5.4 percent.
“The U.S. economy remains a bright light in the global economy, although the light is hardly blinding, and also showing some signs of fading,” said Chris Williamson, chief economist at Markit. He noted that the economies of Britain and many other European countries fell back into recession in recent months.
“The U.S. remains one of the few drivers of global demand and economic growth in 2012,” he said. It was “particularly encouraging” to see consumer spending thrive during the quarter.
“Consumer sentiment has clearly improved somewhat in recent months, aided by the steadily improving job market and better economic news flow,” he said
The overall pace of growth, at 2.2 percent, was below the 2.5 percent expected on Wall Street.
“The markets will be disappointed by this number but you shouldn’t knock growth,” said Jason Conibear of Cambridge Mercantile, a foreign exchange firm in London. “Growth is an increasingly rare commodity in the global economy, but the U.S. has got it.”
The gloom out of Europe could eventually be more of a drag on the U.S. economy, he said. “The biggest threat to the U.S. economy is the Eurozone,” which he said has turned into a “disaster zone” where the “economy has gone into free fall.”
While the private sector expanded nicely in the U.S. during the winter, budget cuts at all levels of government took a toll on growth. Federal spending fell by 5.6 percent, led by a 8.1 percent drop in defense spending. State and local spending declined by 1.2 percent — somewhat less than during the last quarter of 2011.
Scott Hoyt, economist at Moody’s Analytics, said fiscal restraint, the recession in Europe and high oil prices held back growth, which appears to be running at a healthy 2.5 percent underlying rate.
“Despite the weak start to the year, the economy appears solid,” he said. “While hardly a boom pace, this is strong enough to expand employment and reduce joblessness.” He predicted the unemployment rate would fall to 8 percent or below by the end of the year.
“There are more reasons for optimism than pessimism about the economy’s prospects,” Mr. Hoyt said, since consumers are starting to feel their oats after several years of hunkering down and paying off debts. “U.S. companies have arguably never been in better financial shape, and the banking system is well capitalized and profitable.”
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