WASHINGTON – The economy likely stumbled at the start of this year, but there’s probably little reason to worry: Economists foresee a solid rebound with the end of a harsh winter.
The Commerce Department on Wednesday will issue the first of three estimates of how fast the economy grew in the January-March quarter. The expectation is that growth slowed to an annual rate of around 1.1 per cent, a lacklustre pace that would be sharply down from a 2.6 per cent annual growth rate in the previous quarter.
Economists think the first-quarter slump, caused in large part by the severe winter, will give way to stronger growth that should endure through the rest of the year.
Most analysts say a bounce-back in consumer spending, business investment and job growth will lift growth in the second quarter.
In fact, many say 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment.
Analysts think annual economic growth has rebounded to around 3 per cent in the current April-June quarter and will remain roughly that strong through the second half of the year.
If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product, the broadest gauge of the economy’s health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 per cent, two years before the nation fell into the worst recession since the 1930s.
A group of economists surveyed this month by The Associated Press said they expected unemployment to fall to 6.2 per cent by the end of this year from 6.7 per cent in March.
One reason for the optimism is that a drag on growth last year from higher taxes and deep federal spending cuts has been diminishing. A congressional budget truce has also lifted any imminent threat of another government shutdown. As a result, businesses may find it easier to commit to investments to modernize and expand production facilities and boost hiring.
State and local governments, which have benefited from a rebound in tax revenue, are hiring again as well.
A survey by the private Conference Board released Tuesday found that while U.S. consumer confidence dipped this month, many people foresee a strengthening economy in the months ahead.
Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year — starting with the April jobs report, which will be released Friday.
“Those are the types of job gains which will generate incomes and consumer confidence going forward,” Naroff said.
Naroff said solid job growth should lead consumers, who drive about 70 per cent of the U.S. economy, to boost spending. He expects pent-up demand from purchases that were put off during the harsh winter to power a burst of growth in the April-June quarter. He thinks annual growth for the quarter will reach a vigorous 4.3 per cent.