The US economic recovery was far weaker in the first quarter of the year than first thought, the Commerce Department said on Wednesday. The nation’s gross domestic product (GDP), the broadest measure of all goods and services produced in the economy, grew at a 1.8% annual rate from January through March. The figure was revised down from 2.4% as consumer spending and business investment were revised sharply downward.
The economy has grown for 15 consecutive quarters, but the pace of those gains – about 2% – is among the weakest for recoveries since the second world war. In the fourth quarter of 2012, economic output expanded by only 0.4%. Personal consumption expenditures – the key measure of consumer spending – was revised down to 2.6% from 3.4%. Spending on foreign travel, legal services, personal care and healthcare, especially dental and home healthcare, were weaker than previously estimated, the Commerce Department said. The Commerce Department revised growth in private investment to 7.4% in the first quarter, down from an original estimate of 12.3%.
This was the third revision to the first quarter’s GDP figures. Dan Greenhaus, chief global strategist at BTIG, said it was unusual for the third estimate to deviate so dramatically from the second estimate. “Clearly growth in the first quarter was much weaker than previously thought,” he wrote in a note to investors.
“Another area of meaningful weakness is imports; imports were originally reported as growing by 5.4% but now show a contraction of 0.4%. There is one area of positivity though; residential investment expanded at a more rapid pace that originally thought. So housing continues to be an important boost to growth when several other categories are weighing on the economy.”
The deepest recession since the Great Depression officially ended in June 2009. But growth has averaged about 2% annually, among the weakest for recoveries since the second world war.
Last week the Federal Reserve chairman, Ben Bernanke, triggered a global sell-off on the stock markets when he gave the clearest indication yet that he intends to cut back on the Fed’s $85bn-a-month stimulus programme. The sell-off came even as Bernanke cautioned that while there were clear signs of recovery in the economy, he would not cut back the so-called quantitative easing programme if they worsened.
One factor holding back the economy, according to Bernanke, is tightening fiscal policy. The Fed said last week that massive government spending cuts – known as sequestration – now being implemented are “restraining economic growth” and are expected to take their toll on the second quarter’s GDP. Spending cuts are expected to be $85bn this year and grow to $109bn in 2014, according to a recent report from Goldman Sachs. Macroeconomic Advisers, an economic research firm, is predicting a 1.4% growth rate for the second quarter.
The Fed said last week that it predicted the economy to grow at a rate of 2.3% to 2.6% in 2013 and to top 3% in 2014.
Austerity or growth? Europe’s struggling economies have faced the question without fully answering it in recent years, but the United States is on track to do both.
Projections unveiled this week by the Congressional Budget Office indicate the US deficit will shrink more than 40 percent during fiscal 2013, returning to its lowest level in five years.
The figures would likely be viewed with envy in European capitals as they reflect an outlook based on a US economy that continues to grow — in stark contrast to a eurozone that has been in recession for six consecutive quarters.
The cocktail of US growth and a recovery in its accounts is, paradoxically, the result of endless political wrangling over the federal budget, though the improvement in the nation’s prospects may also be ephemeral.
US Treasury Secretary Jacob Lew, alluding to the deep, automatic sequester cuts that began in March despite White House opposition, conceded Friday that “bad policy is driving down the deficit more quickly than anyone intended.”
The “harsh consequences,” stemming from those reductions are “something we should replace with balanced spending and revenue measures over the medium and long-term,” Lew told Bloomberg Television.
US tax revenues were boosted by a hike in personal tax rates in January, while public spending has been kept in check largely because of the automatic cuts that started in March, much to the chagrin of the Obama administration.
The government received a further boost in early May with the real estate lender Fannie Mae, saved from bankruptcy by a bailout in 2008, would pay back close to $60 billion to public coffers.
Barry Bosworth, a former presidential advisor and now expert on fiscal and monetary policy at the Brookings think tank in Washington, said the United States finds itself in a much better place than envisaged.
“The tax increases and the sequestration, that was a lot to absorb and there were worries that it could push the economy back down,” he said, remarking that an improving private sector “will be enough to offset the fiscal restraints”.
But doubling down on cuts would backfire, according to Bosworth.
“It would a big mistake to go further, the economy was more resilient but it doesn’t mean you can do that again,” he said.
The epicenter of the 2008 crisis — the US property market — has picked up pace again, with the number of building permits for new homes surging in April to more than 35 percent more than 12 months ago.
According to Joel Naroff, president at Naroff Economic Advisors, falling deficits are good news for the US economy, especially given the perennial row between Republicans and Democrats on whether to cut or increase taxes.
“It will ease the pressure on budget cuts” which could have harmed economic recovery, Naroff said.
“A lower deficit will remove the argument that we need to cut spending further,” he added.
Despite the recent good news, the US economy is not immune to catching a cold; unemployment is still high at 7.5 percent in April — many Americans have completely given up their search for work.
The International Monetary Fund and the Federal Reserve have also cited concern at the sequester, with estimates that it could shave up to 0.5 percent off US gross domestic product this year.
“It doesn’t mean that all of a sudden things are great and that the economy is doing well,” said Gregory Daco, of IHS Global Insight.
“The revision is mostly due to one time events,” he added.
Following last night’s State of the Union address, President Obama visits the Linamar Corporation in Ashville, N.C., to deliver remarks about strengthening the economy for the middle class Americans.
Watch live, broadcast on Feb. 13.
US President Barack Obama Friday welcomed a downtick in the unemployment rate to 8.2 percent, despite a slowdown in overall job creation, but said there was more work to do to revive the economy.
“We welcome today’s news that our businesses created another 121,000 jobs last month and the unemployment rate ticked down,” Obama said, but warned there would still be “ups and downs” along the road to recovery.
The economy created 120,000 jobs in March, much lower than the 200,000 forecast by economists.
The unemployment rate dipped slightly from 8.3 percent to 8.2 percent, according to Labor Department figures.
Despite welcoming the drop in the unemployment rate, Obama, who is relying on an improving economy as he campaigns for a second term, also struck a note of caution.
“But it’s clear to every American there will still be ups and downs along the way and we have got a lot more work to do.”
The US economy grew at an annual rate of 3.0 percent in the fourth quarter of 2011, the Commerce Department said in its final estimate Thursday.
The department’s third estimate for gross domestic product growth in the period was unrevised from its prior estimate and capped a year of steadily accelerating growth. GDP grew 1.8 percent in the third quarter.
The Commerce Department said the fourth-quarter pick-up was in part thanks to an uptick in private inventory investment and stronger consumer spending that were partially offset by a decline in federal government spending and slowing exports.
The world’s biggest economy also saw an increase in imports, a factor that subtracts from GDP growth calculations.
For all of 2011, the economy grew 1.7 percent, compared with 3.0 percent in 2010.
Recent data indicates GDP growth slackened in the first quarter.
Scott Hoyt at Moody’s Analytics said the seeds of the slowdown were sown in the fourth quarter as businesses rapidly built up inventories, a pace that would not be maintained.
Other factors that will drag on growth, he said, are reduced government spending and trade “as the recession in Europe undermines exports.”
Nonetheless, Hoyt said, the economy “appears increasingly solid.”
“Looking beyond temporary factors such as the warm winter, GDP appears to be expanding at an annual rate near 2.5 percent,” he said.
“While hardly a boom pace, this is strong enough to expand employment and reduce joblessness in coming months.”
The US jobless rate held steady at 8.3 percent in February after falling for five straight months, the Labor Department said Friday.
The economy created another 227,000 new jobs, topping the the 200,000 mark for the third straight month, not enough to pull the unemployment rate lower but good enough to keep it at its three-year low as growth eased after 2011′s peppy fourth quarter.
The overall official number of unemployed held at 12.8 million, little changed from the previous month.
Hiring was broad-based and came entirely from the private sector as government layoffs continued around the country.
But the number of net government layoffs was also low, just 6,000, suggesting spending cuts by authorities at the federal and local level were beginning to slow as well.
Job creation numbers for the previous two months were revised higher, putting the three month average at 245,000 net new jobs per month, sharply above the 2011 12-month average of 153,000.
In another sign of the underlying strength of the economy, the overall participation rate in the jobs market picked up to 63.9 percent, and the employment-population ratio also rose.
Those figures underscored that the fall in the jobless rate was coming from new positions being created rather than people dropping out of the jobs market altogether, as was the case during part of 2011.
The slowdown in job creation from the previous two months was no surprise: analysts had expected a dip in the rate of economic growth after the peppy pickup to 3.0 percent in the fourth quarter of last year.
Economists were overall cheered by the new numbers, which though down from January outpaced forecasts.
“US economy watchers can breathe a sigh of relief for now as employment growth… exceeded expectations and the economy created enough jobs to absorb re-entrants into the labor market,” said John Ryding and Conrad DeQuadros at RDQ Economics.
“The employment gains appeared broad-based with manufacturing and business services showing particularly encouraging gains,” they said.
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WASHINGTON (Reuters) - General Electric Co plans to hire 5,000 U.S. military veterans over the next five years and to invest $580 million to expand its aviation footprint in the United States this year.
The largest U.S. conglomerate unveiled the moves ahead of a four-day meeting it is convening in Washington starting on Monday to focus on boosting the U.S. economy, which has been slow to recover from a brutal 2007-2009 recession.
“We should have the confidence to act and to restore American competitiveness,” Chief Executive Jeff Immelt, a top adviser on jobs and the economy to President Barack Obama, said in a statement.
The U.S. unemployment rate — seen as the main barrier to a move vibrant recovery — fell to a near three-year low of 8.3 percent in January, helped in part by the manufacturing sector adding about 50,000 workers. Even with that improvement, 23.8 million Americans remain out of work or underemployed, which is keeping the economy a key issue heading into November’s presidential elections.
The world’s largest maker of jet engines plans this year to open three new U.S. aviation plants, in Ellisville, Mississippi; Auburn, Alabama, and Dayton, Ohio. After cutting headcount significantly during the recession — as did its major peers including United Technologies Corp and Caterpillar Inc — GE has added about 9,000 U.S. workers since 2009, and has already announced plans to hire another 4,500 people.
The Fairfield, Connecticut-based company, whose operations range from making loans to mid-sized businesses to manufacturing railroad locomotives, plans to discuss these moves at the Washington meeting. Boeing Co CEO James McNerney and Dow Chemical Co CEO Andrew Liveris are also scheduled to speak.
(Reporting By Scott Malone; Editing by Muralikumar Anantharaman)
WASHINGTON — US President Barack Obama on Sunday hit back at critics who say he is trying to redistribute wealth, and challenged his Republican opponents to deal with growing income inequality.
In an interview with the CBS News program “60 Minutes,” Obama countered rivals who claimed he is moving toward socialist-style policies and fomenting class warfare.
“The problem is, is that our politics has gotten to the point, where we can’t have an honest conversation about the greatest income inequality since the 1920s,” Obama said.
“And we can’t have an honest conversation about the irresponsibility that resulted in the worst financial crisis since the Great Depression, without somebody saying that somehow we’re being divisive. No, we’re being honest about what happened and we’ve got to be honest about how we move forward.”
Obama said he has tried working with Republicans on taxes and the deficit but that the opposition party has failed to budge in its stand on refusing to raise taxes.
“And what I said to them was a balanced approach means exactly what it says. It means it’s balanced,” he said. “What we haven’t seen is any serious movement on the other side.”
Obama acknowledged that Americans should not feel satisfied with the current state of the US economy.
“We’ve gone through an incredibly difficult time in this country. And I would be surprised if the American people felt satisfied right now,” the president said
“They shouldn’t feel satisfied. We’ve got a lot more work to do in order to get this country and the economy moving in a way that benefits everybody, as opposed to just a few.”
Still, he said he can point to a number of accomplishments in his bid for re-election: “Not only saving this country from a Great Depression. Not only saving the auto industry. But putting in place a system in which we’re going to start lowering health care costs and you’re never going to go bankrupt because you get sick or somebody in your family gets sick.”
He said he will point to the reform of the financial system, “so we never again have taxpayer-funded bailouts,” ending the “Don’t Ask, Don’t Tell” policy which banned gays serving openly in the military and “decimating Al-Qaeda, including (Osama) bin Laden being taken off the field.”
But he acknowledged that on the economy, “we’ve got a lot more work to do.”
Although the United States exited the recession under Obama’s leadership, the American economy has been plagued by high unemployment since, and despite falling last month, joblessness remains stubbornly high at 8.6 percent.
“Keep in mind that when I came into office eight million jobs were gone,” Obama said.
“And things were cratering. Six months later, the economy was growing again. And we’ve now had nine consecutive quarters, two and a half years, in which the economy’s grown… But it hasn’t made up for the hole that was created in those six, nine, 12 months before my economic policies took effect.”
The Democratic president, who faces re-election next November 6, offered some offhand comments about two potential Republican nominees, former House speaker Newt Gingrich and former Massachusetts governor Mitt Romney.
Obama said Gingrich is “somebody who’s been around a long time, and is good on TV, is good in debates.”
Romney, who touts himself as a Washington outsider, “has shown himself to be somebody who’s good at politics, as well. He’s had a lot of practice at it,” Obama said.
But he maintained that “it doesn’t really matter who the nominee is going to be. The core philosophy that they’re expressing is the same. And the contrast in visions between where I want to take the country and… where they say they want to take the country is going to be stark. And the American people are going to have a good choice and it’s going to be a good debate.”
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CAIRO — Egypt’s deputy prime minister said on Sunday that his country was committed to a free market economy, after the ownership of three companies was returned to the state, sparking fears among investors.
“The government will not backtrack on a free market economy,” said Hazem al-Beblawi, who is also the interim government’s finance minister.
On September 21, the Cairo Administrative Court suspended the privatisation contracts of three companies, returning them to the public sector.
The sale of the companies — Shebin Textile Company, Tanta Linens and Al-Nasr for Steam Boilers — had been contested in court by the Egyptian Centre for Economic and Social Rights (ECESR).
The ECESR had argued that the companies were sold illegally under the ousted regime of Hosni Mubarak for prices far lower than their real value.
The September court ruling raised fears among foreign investors that Egypt was heading towards a policy of nationalisation.
Beblawi told reporters that the government “respects all its previous agreements and contracts with the private sector, as long as the deals were conducted within the law.”
He said that the January 25 uprising — which toppled Mubarak in February — “worked to restore Egypt as a country of law, so all the court rulings will be implemented.”
“This is the first step in restoring trust in Egypt’s investment climate,” Beblawi said.
The country’s political and economic outlook has been mired in uncertainty since Mubarak was ousted and power passed to the Supreme Council of the Armed Forces (SCAF), which is led by Mubarak’s long-time defence minister.
Heightened frustration at the military rulers’ handling of the transition has led to protests, strikes and sporadic clashes.
Last week SCAF laid out the timetable for the first post-Mubarak parliamentary elections which will start on November 28 and take place over four months.