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April 28, 2011 / J. Shaw

U.S. Economic Growth Slows to 1.8% Rate in Quarter


Total output grew at an annual pace of 1.8 percent from January through March, the Commerce Department said Thursday, after having expanded at an annual rate of 3.1 percent in the fourth quarter of 2010.

When the year first began, economists had been expecting a much more robust growth rate of about 4 percent, only to be barraged by bad report after bad report as the days wore on. Higher commodity prices and winter blizzards that shuttered businesses and delayed construction were among the main causes of the slowdown. For example, nonresidential structures — that is, construction of offices and other buildings — fell by 21.7 percent compared with an increase of 7.6 percent at the end of 2010.

A large decrease in federal defense spending and a widening of the trade gap were other drags on output that forecasters expect will be reversed later in the year.

Of these various obstacles, the biggest concern going forward is higher commodity prices, which reduce the amount of pocket money that households and businesses have available to spend on other purchases. Gasoline prices began to rise midway through the last quarter and have shown little sign of falling in recent weeks.

“Consumers are spending more, but it’s getting soaked up in higher gas prices and higher food prices,” the chief economist at RDQ Economics, John Ryding, said. “That’s not leaving nearly as much left over for discretionary spending.”

Wall Street had little reaction to the report, with markets mainly flat in early trading.

The main sources of strength in the economy last quarter were from business spending on equipment and software, and from companies that were stockpiling inventories.

At an unprecedented news conference on Wednesday, the Federal Reserve chairman, Ben S. Bernanke, addressed concerns about sluggish growth so far this year.

 “Most of the slowdown in the first quarter is viewed by the committee as being transitory,” Mr. Bernanke said, referring to the opinions of the Fed’s Federal Open Market Committee, which sets interest rates. “That being said, we’ve taken our forecast down just a bit, taking into account factors like weaker construction and possibly just a bit less momentum in the economy.”

 Other economic reports so far this year have been relatively strong, including industrial production, corporate earnings and — finally — job growth. The nation’s employers added 216,000 jobs in March, the fastest growth since last spring when the federal government temporarily increased hiring for the decennial census. The job growth last quarter was spread throughout almost every sector.

“The broad set of labor market indicators still look good,” said Andrew Tilton, a senior economist at Goldman Sachs, which is forecasting that the economy will accelerate and expand at a 4 percent annual rate in the second quarter.

 Still, given the ground lost during the Great Recession, the economy has a long way to go before its job market and output are back on track and feeling healthy again. There are some fears that the slow growth in the first quarter may weigh on job growth going forward, since employment trends tend to lag what happens in the rest of the economy.

“Payroll growth may have a temporary wobble,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “This is not a fundamental shift in the path of recovery, but maybe a temporary distortion.”

Economists also downplayed the economic threat to the United States posed by the Japan’s deadly earthquake and tsunami in March.

“It only happened at the very end of the quarter, and any disruptions to supply chains would take a few weeks to come through,” said Paul Dales, a senior United States economist at Capital Economics. “If there’s any effect it’ll happen in the second quarter, but the impact should be minimal.”  CATHERINE RAMPELL


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