Analysts: Economy still strong despite sluggish first quarter
WASHINGTON – Another first quarter of the year. Another reversal for the U.S. economy. Another expectation of a rebound to come.
Today, the government will likely estimate that the economy shrank in the January-March quarter for a second straight year, depressed by brutal weather, a reeling energy sector and an export slump caused by a higher-valued dollar.
Yet few will see any cause for panic.
Steady job gains are widely expected to propel modestly healthy growth for the rest of 2015. A harsh winter is gone. So is a labor dispute that slowed trade at West Coast ports. Home sales and construction are rebounding. Business investment is picking up.
Some sectors of the economy do remain subpar. Energy drillers, for example, have been damaged by persistently low energy prices and are still cutting jobs and slowing production. The rise in the dollar is still making U.S. manufactured goods pricier overseas.
Yet the outlook has brightened considerably since winter. Most economists expect lower gas prices eventually to accelerate consumer spending, the main fuel for the economy.
Analysts generally foresee the economy growing at an annual rate of 2 percent to 2.5 percent in the current April-June quarter, with further strengthening later in the year. That pace would mark a significant gain from the 0.8 percent annualized drop they expect the government to report today in its revised estimate for the January-March quarter, according to a survey by FactSet.
In its first estimate a month ago, the government reported that the economy grew at a scant 0.2 percent rate in the January-March quarter. That figure is expected to be sharply downgraded in part because economists think the U.S. trade deficit – the gap between the value of exports and the larger value of imports – will be more than first estimated.
The stronger dollar hasn’t only made U.S.-produced goods more expensive overseas. It’s also made imports cheaper for U.S. consumers. That combination produces a wider trade gap, which slows growth.
Analysts also say that steadily solid hiring, which has helped cut the unemployment rate to a seven-year low of 5.4 percent, will continue to put money in more people’s hands and fuel spending gains.
Mark Zandi, chief economist at Moody’s Analytics, said he expects growth to reach an annual rate of around 3.5 percent in the second half of the year on the strength of job growth and consumer spending. For the full year, Zandi foresees growth of around 2.5 percent, roughly equal to last year’s 2.4 percent.
Zandi said he thinks “we are on track to get to full employment” – a roughly 5 percent jobless rate – “by this time next year, something we haven’t seen in a decade.”