GDP Growth Slows to 2.2 Percent in Q1

By Bill McGuire

Apr 27, 2012 8:31am
gty forklift dm 120427 wblog GDP Growth Slows to 2.2 Percent in Q1

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The U.S. economy expanded at an annualized rate of 2.2 percent in the first quarter, a slower pace than expected, keeping the recovery on track but failing to generate enough activity to knock down the jobless rate significantly.

This first estimate will be revised later, but economists in various surveys had expected gross domestic product growth  – the output of all goods and services, from cars to electricity to manicures — at 2.5 percent to 3.2 percent annualized.

“In reviewing the numbers, the fear now is that we may be running out of runway before the onset of another recession. We will not be surprised to see continued growth in GDP given the fact that privately held companies continue to grow at a healthy rate,” said Brian Hamilton, CEO of Sageworks. “However, what is becoming slightly concerning is that the unemployment rate is not decreasing at a fast enough rate. ”

GDP growth was 3 percent in the final three months of 2011. Much of the growth in the October-December quarter was due to businesses aggressively restocking their supplies. The pace of restocking is expected to have declined last quarter.

Historically, Hamilton noted, it has taken approximately 12 to 20 months for unemployment to fall in an expansion to roughly pre-recession levels.  ”Right now, we are into the 34th month of the recovery, and, yet, unemployment remains too high.  If we don’t get employment up, we may be bumping into the next recession, during which time we cannot expect job growth.”

The January-March quarter likely benefited from the milder-than-normal winter. It probably led consumers and businesses to step up spending earlier in the year than they typically do. Consumer spending, in particular, is critical because it accounts for about 70 percent of economic activity.

Many economists predict growth will strengthen in the second half of this year because they think hiring will continue to improve. Job growth has helped drive the unemployment rate to 8.2 percent in March from 9.1 percent in August and given households more money to spend.

“I am looking for steady but not spectacular growth this year,”  Joel Naroff, chief economist at Naroff Economic Advisors, told the AP.  Naroff thinks the economy will grow 3 percent for all of 2012.

That would be nearly double the anemic 1.7 percent growth in 2011. The economy expanded 3 percent in 2010, the first full year of the recovery after the Great Recession officially ended in June 2009. In 2009, economic output had shrunk 3.5 percent.

The Associated Press contributed to this report.

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