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2.5% economy may be as good as it gets

Friday, April 26, 2013 - 02:37

Apr 26 - The U.S. economy grew a softer-than-expected 2.5 percent annual rate in the first three months of the year, a pick-up from the fourth quarter, but there are many signs pointing to a recovery that is stalling. Conway G. Gittens reports.

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The U.S. economy gathered steam at the start of the year after nearly flat-lining at the end of last year, the growth - however - not as fast as Wall Street expected and is likely a precursor of what's to come. The first read on first-quarter growth coming in at an annual rate of 2-1/2 percent, missing forecasts for 3 percent. Consumers were the bright spot. Personal consumption jumped by the biggest measure in more than two years but at the expense of savings. The weakest spot? Federal spending. Beth Ann Bovino of Standard and Poor's blames the government for missing her estimate, which was higher than the Street's. SOUNDBITE: BETH ANN BOVINO, SENIOR ECONOMIST, STANDARD & POOR'S (ENGLISH) SAYING: 9.11.40 "If you took out government, government which detracted about close to one percent off of growth - if you put that back in - if government spending was flat, you would see what I would have expected 3.3 percent. The private sector kept spending and that's what's really important here." But there are reasons to be concerned about future private sector spending. Sure, business investment was up 2.1 percent, but that's a fraction of the spending seen the prior quarter, as pointed out by Wells Fargo's John Silivia. SOUNDBITE: JOHN SILVIA, CHIEF ECONOMIST, WELLS FARGO (ENGLISH) SAYING: 9.12.42 "I think that you can be concerned that one when you average out these quarters, you do see more modest growth in equipment and software spending going forward than you had the prior three years. So there definitely is a slowdown." And earnings season provides another clue of what may be in store for private investment. Half of the companies in the S&P 500 have issued first-quarter results, of that group nearly 60 percent have missed revenue forecasts, which is way above the historical norm, according to Thomson Reuters I / B / E / S. Consumers, too, may not be as resilient as they seem. The growth in purchases for large-ticket items, considered a proxy for non-essential spending, slowing significantly at the start of the year. And consumer sentiment fell again in April -hitting a one year low, according to a separate survey. Add in government spending held hostage by sequestration and you have a growth number in the first quarter that may be as good as it gets. SOUNDBITE: JOHN SILVIA, CHIEF ECONOMIST, WELLS FARGO (ENGLISH) SAYING: 9.15.40 "If you want to get to the 3 percent plus numbers you need the government spending to turn around. It doesn't look like that's going to happen this year, so I think more like 2, 2-1/4 percent is probably the outcome for all of 2013." A growth rate that is likely to prevent unemployment from dropping significantly.

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2.5% economy may be as good as it gets

Friday, April 26, 2013 - 02:37

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