Economy likely slowed last quarter but better now

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Associated Press

Posted on April 28, 2011 at 6:48 AM

WASHINGTON (AP) -- The economy probably slowed in the first three months of this year as harsh winter weather and high oil prices hurt spending by consumers, builders and other businesses. But economists predict that was a temporary setback and growth will pick up over the rest of the year.

Thursday morning the government will release a new snapshot of the economy's health that is expected to show a 1.9 percent annual growth rate in the January-March quarter.

That would be much weaker than the 3.1 percent growth rate in the October-December quarter of 2010. And it would be the most sluggish growth since the spring of last year when fears about Europe's debt crisis caused the economy growth's to slow to a feeble 1.7 percent pace.

Even though companies are hiring more, Bernanke said the unemployment rate, now at 8.8 percent, will fall only slowly. Last year, the economy grew by 2.9 percent. But growth would need to be much faster -- at least 5 percent -- to bring down the unemployment rate more quickly.

The Fed predicts the unemployment rate will fall as low as 8.4 percent this year and 7.6 percent next year, when President Barack Obama runs for re-election. Normal unemployment is considered closer to 5.5 percent to 6 percent.

Looking ahead, economists predict consumers and businesses will spend more in the months ahead because gasoline prices, now averaging $3.88 a gallon nationwide, will stabilize by the summer and drop to about $3.50 by fall. Rising gas prices are taking up much of what Americans are pocketing from the Social Security payroll tax cut.

Economists in a new Associated Press survey predict the economy is growing at a 3.2 percent pace this quarter and that growth will steadily improve over the remainder of the year.

"Most of the factors that account for the slower growth in the first quarter appear to us to be transitory," Federal Reserve Chairman Ben Bernanke said at a news conference Wednesday.

However, Bernanke suggested that the crippled housing market will continue to weigh on the economic recovery.

Bernanke pointed out that home building and commercial construction were both "very weak" in the first quarter. Normally, construction spending is a big part of economic recoveries. But not this time, Bernanke said.

The housing market's collapse thrust the economy into a deep recession, and economists say it will take years for the industry to heal. Two years after the recession has ended, the housing market remains depressed, the Fed said.

That's one of the reasons why the United States is experiencing a relatively slow recovery, Bernanke explained.

(Copyright 2011 by The Associated Press. All Rights Reserved.)

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