US economy grew at modest 2.4 pct. rate in Q1

In this March 1, 2013 photo, a crane removes a container from a ship at the Port of Baltimore’s Seagirt Marine Terminal in Baltimore. The government reports on the U.S. trade deficit for March, Thursday, May 2, 2013. (AP Photo/Patrick Semansky)

In this March 1, 2013 photo, a crane removes a container from a ship at the Port of Baltimore’s Seagirt Marine Terminal in Baltimore. The government reports on the U.S. trade deficit for March, Thursday, May 2, 2013. (AP Photo/Patrick Semansky)

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WASHINGTON (AP) — The U.S. economy grew at a modest 2.4 percent annual rate from January through March, slightly slower than initially estimated. Consumer spending was stronger than first thought, but businesses restocked more slowly and state and local government spending cuts were deeper.

The Commerce Department said Thursday that economic growth in the first quarter was only marginally below the 2.5 percent annual rate the government had estimated last month. That’s still much faster than the 0.4 percent growth during the October-December quarter.

Most economists think growth is slowing to around a 2 percent annual rate in the April-June quarter as the economy adjusts to federal spending cuts, higher taxes and further global weakness. Still, many say the decline may not be as severe as once thought. That’s because solid hiring, surging home prices and record stock gains should keep consumers spending.

Jennifer Lee, senior economist at BMO Capital Markets, said the small revision to first-quarter growth supported her view that the economy will grow a moderate 2.2 percent for the year, the same as last year.

Still, Lee expects growth to improve to 3.2 percent in 2014, as the job market accelerates and consumers grow more confident in the economy.

Consumer spending accounts for 70 percent of economic activity as measured by the gross domestic product. GDP is the economy’s total output of goods and services, from haircuts and computers to trucks and aircraft carriers.

The government’s second look at first-quarter growth showed that consumer spending roared ahead at a 3.4 percent annual rate. That’s the fastest spending growth in more than two years and even stronger than the 3.2 percent rate estimated last month.

Healthy consumer spending shows many Americans are shrugging off an increase this year in Social Security taxes that has reduced most paychecks.

And more consumer demand could also prompt businesses to restock at a faster rate later this year. Business inventories grew in the first quarter but at a slightly slower pace than first estimated. That was a key reason for the small revision.

A big reason that consumers have been able to withstand the higher taxes is the job market has improved. Employers have added an average of 208,000 jobs a month since November. That’s well above the monthly average of 138,000 during the previous six months.

Surging stock prices and steady home-price increases have also allowed Americans to regain the $ 16 trillion in wealth they lost to the Great Recession. Higher wealth tends to embolden people to spend more. Some economists have said the increase in home prices alone could boost consumer spending enough to offset a Social Security tax increase.

The weakest area of the economy continues to be government spending, which fell for the 10th time in the last 11 quarters. The 4.9 percent rate of decline was even larger than first estimated, reflecting further drops in defense spending and weaker activity at the state and local level.

Economists were puzzled by the steeper decline at the state and local level. Spending among those governments fell in the first quarter at an annual rate of 2.4 percent — double the initial estimate and the biggest quarterly drop in two years.

And with the federal government furloughing workers and trimming other spending to meet the mandates of the sequester, government activity will be a drag on growth for the rest of the year.

“The fiscal squeeze will continue for the rest of the year,” said Paul Ashworth, chief U.S. economist at Capital Economics. Still, Ashworth doesn’t see economic growth slowing very much in the current quarter. He projects growth in the April-June quarter to come in at a rate between 2 percent and 2.5 percent.

The housing recovery continued to add to growth at the start of the year. Home construction, one of the economy’s top performers, grew at an annual rate of 12.1 percent in the first quarter, its third consecutive quarter of double-digit growth.

Businesses, however, reduced the pace of their investment in equipment and computer software. That slowed to a growth rate of 4.6 percent in the first quarter, down from growth of 11.8 percent in the fourth quarter.

Associated Press

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US economy grew at modest 2.4 pct. rate in Q1

Japanese economy grew at 3.5 percent pace in 1Q

TOKYO (AP) — Japan‘s economy saw a stronger than expected recovery last quarter, growing at a 3.5 percent annual pace as the government stepped up public works spending and eased credit to encourage investment.

The data for January to March showed the world’s third-largest economy grew 0.9 percent on a quarterly basis, compared with revised GDP data showing 0.3 percent growth in the final quarter of 2012, as Japan inched its way out of recession. The figures were reported by the Cabinet Office on Thursday.

Prime Minister Shinzo Abe took office in late December vowing to help the economy recover from two decades of malaise by breaking out of chronic deflation. His policies have helped push share prices to their highest levels in over five years, fueled by strong liquidity and expectations of improved profitability for listed companies.

The benchmark Nikkei 225 stock index rose to 15,139.56 early Thursday before falling back slightly on profit taking. It has gained about 75 percent since November in a rally linked to high hopes for Abe’s policies, which have been dubbed “Abenomics.”

A sharp decline in the value of the Japanese yen, brought on both by monetary easing and by expectations of further easing, has helped some exporters and provided a windfall in yen terms for companies repatriating overseas earnings. But it is also raising costs for many companies that depend heavily on imports of natural gas and other commodities.

Apart from share prices, Japan’s manufacturing and employment showed slight improvements in March, buttressing hopes that the economy may be headed for a moderate recovery.

The central bank, which is committed to achieving 2 percent inflation within two years, says it expects a moderate recovery by midyear but has warned that uncertainties in the domestic and global economies could foil those hopes.

Critics of the Abenomics strategy question whether the extra funding pumped into the economy will foster sustainable growth or just push up prices for shares and other assets.

Key to the success of the policies will be increased spending by households and corporations, partly due to expectations that prices will rise. So far, increases in spending have been attributed mainly to luxury purchases by share investors splashing out after seeing gains in their portfolios. The Nikkei 225 stock benchmark has risen nearly 28 percent in the past three months.

Much of the growth in the first quarter of the year came from public demand, as in government spending on reconstruction from Japan’s March 2011 tsunami disaster and other public works. Private demand has been fueled by a recovery in housing investment, which has picked up sharply as purchasers rush to beat expected increases in sales taxes in the coming two years.

The tax increase, while needed to help reduce Japan’s massive public debt, will amount to a “major fiscal tightening,” Capital Economics economist Julian Jessop said in a commentary before the GDP data was released.

“Overall, ‘Abenomics’ surely represents the right mix of policies to tackle Japan’s problems,” he said, noting that the government faces a challenge in carrying out fiscal and structural reforms — such as changes in labor, education and tax policies and administrative deregulation — to help improve Japan’s long-term competitiveness and adapt to its aging and shrinking population. In the near term, if companies do not boost wages to help improve household purchasing power, inflationary policies could just discourage consumer spending, he and other economists warn.

“On these points at least, the jury is still out,” he said.

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Japanese economy grew at 3.5 percent pace in 1Q