Economy lags, but it may be far from spent
The U.S. economy hit the skids in the first quarter, posting its worst growth rate in four years. But the continued spending of consumers and businesspeople like Debbie Warren has many experts predicting better times.
Warren bought six new computers in January for the optometry practice she manages with offices in West Covina and Whittier. Don't blame her for the slow economy.
Instead, the slumping housing market was cited as a primary culprit in a Commerce Department report Friday showing that the nation's gross domestic product grew at a surprisingly sluggish 1.3% annual rate in the January-March quarter, the slowest pace since the first quarter of 2003. That contrasts with the 2.5% growth in last year's fourth quarter and the 3% pace considered to be par for the U.S. economy during expansions.
Spending on housing construction fell at a 17% annual rate in the first quarter, according to the report.
But many economists expect businesses and consumers to offset the drag of the housing market, leading to rebounding growth the rest of this year.
"It is easy to see the glass as half empty, but we have likely seen the worst of things," said University of Maryland business professor Peter Morici. "Consumer spending and stronger business investment will likely raise growth for the balance of the year."
With some stock market indexes setting all-time highs this week, Wall Street also appears to see better times ahead. Strong gains in stock prices, despite weak economic data, suggest that investors are confident that the economy won't fall into recession, analysts say.
That view also has been reinforced by better-than-expected quarterly earnings reports from many big U.S. companies, including Microsoft Corp., Caterpillar Inc. and 3M Co.
The stock market on Friday largely took the weak growth report in stride. The Dow Jones industrial average edged up to another record high, adding 15.44 points to 13,120.94.
If investors and analysts are right about the economy reviving, the first-quarter slump could be a part of a "midcycle slowdown" similar to that of the mid-1990s. At that time the economy lost steam after a series of Federal Reserve interest rate hikes, but it avoided recession. The economy and the stock market then rebounded, racking up one of the strongest booms ever in the late 1990s.
