Economic Growth Picks Up in 1Q But Not as Much as Hoped

us gdp economic growth
David McNew/Getty Images
By Lucia Mutikani

WASHINGTON -- U.S. economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes.

Gross domestic product expanded at 2.5 percent annual rate, the Commerce Department said on Friday, after growth nearly stalled at 0.4 percent in the fourth quarter. The increase, however, missed economists' expectations for a 3.0 percent growth pace.

Part of the acceleration in activity reflected farmers' filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5 percent.

Given the smaller-than-expected increase and signs the economy has weakened in recent weeks, the GDP data will probably weigh on U.S. stocks. It could also give ammunition for the Federal Reserve to maintain its monetary stimulus.

The U.S. central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85 billion a month.

Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year. There are indications the weakness persisted into April.

Broad-Based Gains

The GDP report showed contributions to growth from all areas of the economy, with the exception of government, trade and investment by businesses in offices and other commercial buildings.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.2 percent pace -- the fastest since the fourth quarter of 2010. It grew at a 1.8 percent rate in the fourth quarter of last year.

However, households cut back on saving to fund their purchases after incomes dropped at a 5.3 percent rate in the first quarter -- a bad sign for future spending growth. The drop in income was the largest since the third quarter of 2009.

The saving rate -- the percentage of disposable income households are socking away -- fell to 2.6 percent, the lowest since the fourth quarter of 2007, from 4.7 percent in the fourth quarter of 2012.

Much of the gains in first-quarter spending came from automobile purchases and outlays for utilities, which were boosted by unusually cold temperatures. Consumers managed to step up their spending despite the return of a 2 percent payroll tax and higher gasoline prices.

Despite the spike in gasoline prices, inflation pressures were benign in the first three months of the year.

An inflation gauge in the government's GDP report rose at a 0.9 percent rate, the smallest increase since the second quarter of 2012. The personal consumption expenditure index had increased at a 1.6 percent pace the fourth quarter.


A core measure that strips out food and energy costs rose at a 1.2 percent rate, still well below the Fed's 2 percent target. Core PCE had increased at a 1.0 percent rate in the fourth quarter.

The lack of inflation should come as welcome relief for American households, but it could cause some nervousness at the U.S. central bank, which may see it as a symptom of the economy's weakness.

Another big contributor to growth in the fourth quarter was inventory accumulation, which added a full percentage point to GDP growth after chopping off 1.5 points from output in the final three months of last year.

Business spending on equipment and software slowed sharply, growing at an only 3.0 percent rate after a brisk 11.8 percent pace in the fourth quarter.

Economists caution that it is too early to blame the cooling in business investment and other more recent signs of economic softness on the $85 billion in mandatory government spending cuts, known as the sequester, that began on March 1.

Homebuilding marked an eighth straight quarter of growth, though the pace moderated from the fourth quarter. Housing added to growth last year for the first time since 2005 and its recovery should help ensure the economy doesn't contract.

While export growth rebounded, it was outpaced by imports, resulting in a trade deficit that cut off half a percentage point from output.

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basscat58

Hey Consumers spent because they had too! As long as this disfunctional Socialist with a Tood is in the White House grab your money clip@! For all you Left Wing Turkey's you are Slow Learners take the Short Bus!

April 26 2013 at 10:23 PM Report abuse rate up rate down Reply
obamaisafiasco

I see the nimble minded Obamabot has a new screen name and continues to post and show his stupidity

April 26 2013 at 5:57 PM Report abuse rate up rate down Reply
bchrist751

We keep living the Obama economic nightmare. and this fall Obama care kicks in. Oh happy days...

April 26 2013 at 1:14 PM Report abuse +5 rate up rate down Reply
ybob555

After reading some of these posts that do nothing but call names & bicker back & forth with other posters, it's a shame you just can't come up with any constructive criticism or suggestions as to how to solve problems other than bit*h about them.
Lying by Presidents & their administrations are as old as time, & it will never change. Distorted figures & reports too will always be put forth, to make themselves look good. Figures & reports can be manipulated in so many ways it's hard to keep count of them.
The fact is he has some bad policies ( most of them) & surrounded himself with a bunch of questionable advisers. My person opinion is, he really didn't want to be President for a second term, didn't want to be President in his first term either, since he gave most of the power to Nancy & Harry, & has his retirement set.

April 26 2013 at 12:57 PM Report abuse -3 rate up rate down Reply
apartyof.omg.nojobs

WONT BE LONG BEFORE O~BOIMB~US ILLEGAL IMMIGRANTS THAT HE LET "BREAK" INTO AMERICA BOMB N KILL N MAIM OUR AMERICAN CITIZENS AGAIN. ! STAY AWAY FROM CROWED PLACES UNTILL THIS MUSLIM CLOWN IS REMOVED FROM OUR WHITE HOUSE IN HANDCUFFS. ! YOUR NOT SAFE ANYMORE WITH HIS ILLEGAL IMMIGRANT TERRORISTS RUNNING AROUND OUR COUNTRY. !

April 26 2013 at 12:35 PM Report abuse rate up rate down Reply
tmoschetti

Hoped for by whom, the Obamamedia acolytes, or those who have been visiting some far planet for the past 4+ years?

The recession OFFICIALLY ended in June 2009, and we're still crawling along with economic growth below Cuba's and 166 other countries.

HAVANA, Cuba (AP) — Cuba says it will finish the year with 3.1 percent economic growth, lower than expected but higher than in 2011, when growth was 2.7%. Our growth rate in 2011 was 1.8%

It appears that Cuba's Socialist/Communist/Marxist leaders are considerably more competent than our Socialist/Communist/Marxist "leader!"! And it gets worse. We're below 75 percent of the world in GDP growth. We’re below Egypt, Mexico and Albania

In fact we're number 166 in the world. I guess Obama's promised "fundamental transformation" of our country has succeeded beyond Plugs Biden's "wildest dreams!"

April 26 2013 at 12:34 PM Report abuse rate up rate down Reply
1 reply to tmoschetti's comment
apartyof.omg.nojobs

WERE 'STILL" IN THE MUSLIM CLOWNS "GREAT RECESSION" TODAY N THE MUSLIM CLOWNS NEW SOUNDS OF 2013 AMERICA ..BOOOOOM ! ! ! BOOOOOM ! ! AS HIS ILLEGAL IMMIGRANTS HE LET "BREAK" INTO AMERICA ARE BOMBING N KILLING N MAIMING OUR AMERICAN CITIZENS. !

April 26 2013 at 12:43 PM Report abuse +1 rate up rate down Reply
The Porter Clan

"could heighten fears the already weakening economy could struggle to handle deep government spending cuts"......This myth about deep government spending cuts is starting to get pretty annoying........The government reduced the amount of "increase" for this years budget and call it "cuts". If I increased my spending by $100 and then told my wife I was taking $2.00 off that to cut my spending, she would probably suggest I seek therapy......

April 26 2013 at 12:22 PM Report abuse rate up rate down Reply
Tom

And stay tuned for the updated version. Sorry folks you can't sell the inept Obama any more

April 26 2013 at 12:15 PM Report abuse +1 rate up rate down Reply
apartyof.omg.nojobs

MORE LIES FROM THE DISGRACED OBAMY CAMP,AS UNEMPLOYMENT IS TRIPLED~RECORD UNEMPLOYMENT FOR THE LAST 5 PLUS YEARS SINCE PRESIDENT BUSH 4.9 UNEMPLOYMENT RATE. !

April 26 2013 at 12:11 PM Report abuse +1 rate up rate down Reply
Bill Ridenour

Get off this deep spending cut crapola. Government spending will increase 1.6% this year. The 2% cuts made by the sequester could easily have been taken in stride by this administration had it wanted to do so. Did not the repiblicans offer to allow Obama to pick and schoose his cuts and did he not refuse to do so?

Those of us American who have to pay FICA taxes saw a 2% withholding on our own paychecks in 2013 and we did not whine like little babies about it.

But on the contrary-increased taxes-and you are forgettoign the impact of Obamacare on job creation-will have a huge effect on this staggering economy as retail sales are already weakening because of a decrease in disposable consumer income.

And the tax base is not growing iether. the labor Participation Rate is at 63.3%-the lowest it has been since 1979-when another incompetent Democrat named Jimmy Carter led us into Stagflation. This is 2.5% lower than when Bush Jr. exited in 2008.

These are the real reasons for the economic weakening.

April 26 2013 at 11:41 AM Report abuse rate up rate down Reply
1 reply to Bill Ridenour's comment
mrbasebal1

Some people are finally waking up to these facts. You can't tax a nation into prosperity--especially when the labor participation rate is declining. You have millions of baby boomers retiring and many other people have given up looking for a job.

April 26 2013 at 12:36 PM Report abuse +1 rate up rate down Reply