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Continued: Revision shows US economy grew at much slower 1.8 percent annual rate in January-March quarter

  • Article by: CHRISTOPHER S. RUGABER , AP Economics Writers
  • Last update: June 27, 2013 - 12:18 AM

But the change from the first estimate to its third one — from an annual rate of 2.5 percent growth to a 1.8 percent rate — was close to the average: 0.6 percentage point.

"We do not want to overreact to the Q1 data," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities. He noted that the government has tended to revise up its monthly employment data — a trend, that if it continued, would "suggest on balance that real GDP growth could be understated."

The biggest drag on the economy remains government spending. It fell during the first quarter at an annual rate of 4.8 percent. That shaved 0.9 percentage point from growth.

Economists expect steep federal spending cuts to continue to weigh on growth in the second and third quarters. Edelstein predicts annual growth rates of just 1.5 percent in the current quarter and 1.8 percent in the July-September quarter.

Naroff is more optimistic than most: He's forecasting annual growth rates of 2.5 percent in both quarters.

Still, both think the Fed is unlikely to scale back its bond purchases until annual growth moves closer to 3 percent.

Mark Zandi, chief economist at Moody's Analytics, said he suspects the Fed will wait until its December meeting to slow its bond purchases, rather than in September as many have been predicting.

Zandi thinks the unemployment rate should reach 7 percent by the middle of next year, in line with the Fed's projections. It's now 7.6 percent.

The latest economic reports have been encouraging. U.S. factories are fielding more orders. Higher home sales and prices are signaling a steady housing recovery.

Spending at retail businesses rose in May. And employers added 175,000 jobs last month, which almost exactly matched the average increase of the previous 12 months.

Stable job growth has gradually reduced the unemployment rate to 7.6 percent from a peak of 10 percent in 2009. And it's lifted Americans' confidence in the economy to its highest point in 5½ years.

"If growth accelerates in the fourth quarter, and that is followed by better growth next year, that would be the development that is necessary to convince everyone on the Fed that there are minimal risks to the economy from starting to taper the bond buys," Naroff said. "I don't see that happening until the spring."

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  • FILE - In this March 1, 2013 file photo, a crane removes a container from a ship at the Port of Baltimore's Seagirt Marine Terminal in Baltimore. The government issues its third and final estimate of economic growth in the January-March quarter, Wednesday, June 26, 2013. (AP Photo/Patrick Semansky, File)

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