US GDP grows 1.9% year-on-year in Q1
NEW YORK (CNNMoney) – The country’s economy has grown at a slower pace than previously reported in the first three months of this year, raising further concerns over economic weakness.
Gross domestic product, the broadest measure of the country’s economic health, rose at an annual rate of 1.9% in the first quarter, the Commerce Department said Thursday. The rate has been lowered from the 2.2% growth rate initially reported in April, and significantly slower than the 3% growth rate in the last three months of last year.
The current growth rate is widely considered low. A growth rate of around 3% is what economists generally expect employers to commit to the kind of heavy hiring needed to reduce unemployment.
The government will release the closely watched May employment report on Friday. Analysts polled by CNNMoney expect the US economy to create 150,000 jobs in May, including 12,000 government job cuts. The unemployment rate is expected to remain at 8.1%.
Despite the reduced growth rate, the US economy is significantly stronger than that of Europe, as the 27 countries of the European Union and the 17 countries of the euro area recorded no growth in the first quarter. There are 11 European countries where GDP has declined for two or more consecutive quarters, the common description of a recession.
US growth is lagging behind economic expansion in many emerging markets, such as China, now the world’s second-largest economy. China’s GDP grew at an annual rate of 8.1% in the first quarter. India’s GDP grew 5.3% in the first quarter.
Growth in these two large emerging economies has been significantly slower than at the end of last year.
US consumer spending, which accounts for more than two-thirds of the country’s economic activity, has been somewhat stronger than overall growth, growing at an annual rate of 2.7%. Demand for big-ticket items, such as automobiles, was behind much of the increase, with those purchases growing at an annual rate of nearly 15%.
But government spending fell in the quarter, slashing growth by nearly 0.8 percentage point. Business spending was also weak, with investment in hardware and software adding just 0.3 percentage point, the smallest contribution to growth in this figure since the second quarter of 2009, when the US economy was still weak. in recession.
Slow growth is expected to continue in the United States for the foreseeable future. The Federal Reserve is currently forecasting growth of between 2.2% and 2.7% for the whole of 2012. While it anticipates slightly better growth in 2013 and 2014, the Fed’s long-term forecast is growth. annual between 2.3% and 2.6%.
Joseph LaVorgna, chief US economist for Deutsche Bank, said he believes stronger growth is possible later in the year, which happened in 2011. He points to the recent decline oil and gasoline prices as a factor that could provide a boost.
âIt acts like a big tax cut for households and businesses,â he said.
But he said such growth could be hampered by problems with European sovereign debt, which many experts fear could spread quickly as contagion. LaVorgna said uncertainty over Europe could limit growth for at least a little longer.
âIt seems to me that in the short term we could be stuck in 2% purgatory,â he said.
The problem of Europe on the verge of recession likely slowed growth in the United States and China in the first quarter, as Europe is a major market for both countries’ exports. Trade with other countries, which contributed to US GDP last year despite the trade gap, reduced first-quarter growth by about 0.1 percentage point.
First published: May 31, 2012: 8:45 am ET