economic indicators

Growth in U.S. trails forecasts as defense spending falls

THE U.S. DEPARTMENT OF COMMERCE reported Thursday that the country's economy grew less than forecast during the first quarter of 2013 as a drop in defense spending outweighed the biggest uptick in consumer spending in two years.
Posted 4/26/13

NEW YORK - The economy in the U.S. grew less than forecast in the first quarter as a drop in defense spending outweighed the biggest increase in consumer spending in two years.

Gross domestic product rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, Commerce Department figures showed today in Washington. The median estimate of 86 economists surveyed by Bloomberg called for a 3 percent gain. Consumer spending, the biggest part of the economy, climbed by the most since the fourth quarter of 2010.

A boost to wealth from rising stock and home prices combined with a reduction in savings to help Americans cushion an increase in the payroll tax that has now begun to pinch. Recent data signal the strength in other parts of the economy may also not be sustained as across-the-board cuts in planned federal spending, together with slower stockpiling, may be restraining investment and employment.

“There are ebbs and flows but the overall picture is one of a moderately growing economy,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. MFR was the second-best forecaster of the economy in the past two years, according to data compiled by Bloomberg. “We’ll see a bit of tailing off this quarter.”

Stock futures remained lower after the report. Futures on the Standard & Poor’s 500 Index expiring in June declined 0.3 percent at 8:43 a.m. in New York.

Economists’ forecasts

Economists’ GDP forecasts ranged from 1 percent to 3.8 percent. The estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available.

In addition to consumer spending, growth in the first quarter was driven by a rebound in stockpiling and a gain in residential construction.

Government outlays declined for the 10th time in the past 11 quarters, restraining growth. Defense spending dropped at a 11.5 percent annualized pace following a 22.1 percent plunge in the last three months of 2012. That was the biggest back-to-back decline on average since 1954, when the military demobilized during the Korean War.

Today’s report showed household consumption, which accounts for about 70 percent of the economy, climbed at a 3.2 percent rate following a 1.8 percent increase from October through December, and compared with the 2.8 percent median forecast in the Bloomberg survey. Purchases added 2.24 percentage points to growth.

Americans boosted spending by putting less money in the bank. The saving rate dropped to 2.6 percent in the first quarter, the lowest since the fourth quarter of 2007, from 4.7 percent in the last three months of 2012.

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