U.S. Economic Growth Up 2.7%, Less Than Expected

currency, money, saving, spending, cash, hundreds, greenbacks, bills, franklins, economy,
AP
The government lowered its estimate of how much the U.S. economy grew in the first quarter of the year, noting that consumers spent less than it previously thought.

Gross domestic product rose by 2.7 percent in the January-to-March period, the Commerce Department said Friday. That was less than the 3 percent estimate for the quarter that the government released last month. It was also much slower than the 5.6 percent pace in the previous quarter.

The economy has now grown for three consecutive quarters after shrinking for four straight during the recession — the longest contraction since World War II.

In normal times, 2.7 percent growth would be considered healthy. But it's relatively weak for a recovery after a steep recession. After the last sharp downturn in the early 1980s, GDP grew at rates of 7 percent to 9 percent for five straight quarters.

"It's what I call a halfhearted economic advance," said Stuart Hoffman, chief economist at PNC Financial Services Inc. The economy is likely to grow at a similarly modest pace for the rest of the year, he said. That may reduce joblessness, but at a slow pace. He anticipated a slight reduction, from the current rate of 9.7 percent to about 9.3 percent by the end of the year.

The European debt crisis is likely to slow world trade in the second half of the year and businesses may pull back on spending once they have rebuilt their inventories, said Paul Dales, U.S. economist with Capital Economics.

"Overall, the U.S. economy may be performing much better than those in Europe, but this is still the weakest and longest economic recovery in U.S. postwar history," Dales said.

The latest revision had little impact on the financial markets. The Dow Jones industrial average rose about 10 points in the first hour of trading.

Factories are churning out more steel, cars, appliances and other goods, but not because consumer demand is particularly strong. Instead, they are producing the goods for companies that let their stockpiles drop during the steep recession, to bring them in line with lower sales. Now those companies are restocking their warehouses as sales revive.

Once that process is complete, inventory restocking will provide less of a boost to GDP.

Another factor inhibiting growth will be a reduction in government spending. The impact of the federal stimulus program is expected to fade toward the end of the year. Economists also warn that state and local governments are likely to rein in spending and raise taxes as they struggle to close budget gaps. That was apparent in the latest GDP estimate, which showed state and local governments reducing their outlays by about 4 percent.

The department's report is the third of three estimates it makes for each quarter's GDP, the broadest measure of the nation's economic output. The first quarter's growth rate declined from earlier reports because consumers spent less than previously estimated, while the nation imported more goods from overseas.

The government updates the figures with new information that is released after the initial reports.

Still, there were signs of health. Consumers boosted their spending by 3 percent, almost double the pace of the previous quarter. That's below the previous month's estimate of a 3.5 percent increase, but is still the largest increase in three years. Businesses ratcheted up their spending on equipment and software by 11.4 percent.

Growth of roughly 3 percent is needed just to generate enough jobs to keep up with increasing population. Many economists say growth needs to reach 5 percent for a full year to lower the jobless rate, currently at 9.7 percent, by one percentage point.

In the past three quarters, growth has averaged 3.5 percent.

GDP measures the value of all goods and services produced in the United States and is considered the best measure of the country's economic health.