U.S. Growth Weakest in Over 4 Years
By Jeremy W. Peters
May 31st, 2007
NYT
The government cut in half its estimate of economic growth in the first quarter, reporting the slowest rate of expansion since the end of 2002.
Before today’s numbers were released by the Commerce Department, it was clear the economy was downshifting from the rapid 5.6 percent expansion of the first quarter last year. But the new data reinforced how significant the slowdown has been.
Growth advanced just 0.6 percent, compared with an initial estimate of 1.3 percent. IThe chief reasons for the revisions were adjustments to the estimates of imports and business inventories. Imports, which subtract from the gross domestic product, were stronger than the government first thought. At the same time, businesses cut production and accumulated smaller inventory stockpiles.
Despite the adjustments to the growth figures, inflation in the first quarter was essentially unrevised. Prices excluding food and energy, a measure preferred by the Federal Reserve, advanced by 2.2 percent in the first quarter, still above what the central bank has said it considers acceptable.
But there were some revisions to the numbers that economists said they found to be encouraging. Consumer spending, the staple of economic growth for the last decade, was revised higher. It advanced 4.4 percent in the first quarter, compared with an initial estimate of 3.8 percent. And the drag from the collapse in residential real estate was slightly less than the government first reported.
Most economists agree that the first quarter was probably a low point for the last several years, and they expect the economy has regained some strength in the second quarter. Although consumer spending has probably slowed since the first quarter and the correction in the housing market is continuing, economists expect demand from overseas — given an added lift because of a weaker dollar — to help businesses in the United States.
“We know that the world economy is growing,” said Ken Mayland of ClearView Economics. “It doesn’t seem realistic that our exports will be dead in the water. And in the context of an even cheaper dollar, they’re even more competitive now.”
A new report today found that some American businesses are indeed seeing faster growth. The National Association of Purchasing Management said that its measure of manufacturing activity in the Chicago area rose far above the level economists expected in May. Its barometer rose to 61.7 from 52.9 in April. Readings above 50 indicate growth.
Another significant factor that will determine how much the economy grows during the rest of the year is the labor market. And today there were signs that it has so far avoided hitting the skid that many economists have predicted. The Labor Department said today that the four-week moving average of Americans filing state unemployment claims for the first time fell to 304,500, the lowest level in more than a year. Initial jobless claims dropped by 4,000, to 310,000, in the week ended May 26. Tomorrow, the Labor Department will report job growth and unemployment statistics for May, shedding more light on the health of the labor market.
The housing market, meanwhile, continued to weather its slowdown. In a separate report today, the Commerce Department said that construction spending rose 0.1 percent in April after a 0.6 percent gain in March. At the same time, spending on residential construction fell again.
