US economy accelerates at 2.5 percent rate in Q1 - Los Angeles News | FOX 11 LA KTTV

US economy accelerates at 2.5 percent rate in Q1

Posted: Updated:

By MARTIN CRUTSINGER

AP Economics Writer

WASHINGTON (AP) -- U.S. economic growth accelerated to an annual rate of 2.5 percent from January through March, buoyed by the strongest consumer spending in more than two years. Government spending fell, though, and tax increases and federal budget cuts could slow growth later this year.

The Commerce Department said Friday that the economy rebounded from an anemic 0.4 percent annual growth rate in the October-December quarter. Consumer spending surged at an annual rate of 3.2 percent -- its biggest jump since the end of 2010.

Growth was also helped by businesses, which responded to the greater demand by rebuilding their stockpiles. And home construction rose further.

Government spending sank at a 4.1 percent annual rate, led by another deep cut in defense spending. The decline kept last quarter's increase in economic growth below expectations of a 3 percent rate or more.

Many economists say they think growth as measured by the gross domestic product is slowing in the April-June quarter to an annual rate of just 2 percent. Most foresee growth remaining around that subpar level for the rest of the year.

GDP is the broadest gauge of the economy's health. It measures the total output of goods and services produced in the United States, from haircuts and hamburgers to airplanes and automobiles.

Across-the-board government spending cuts, which began taking effect March 1, have forced federal agencies to furlough workers, reduced spending on public projects and made businesses more nervous about investing and hiring.

Consumers' take-home pay has also fallen because President Barack Obama and Congress allowed a Social Security tax cut to expire. A person earning $50,000 a year has about $1,000 less to spend this year. A household with two high-paid workers has up to $4,500 less. Consumers' take-home pay is crucial to the economy because their spending drives roughly 70 percent of growth.

Americans appeared to shrug off the tax increase at the start of the year. They spent more in January and February, powered by a stronger job market.

But hiring slowed sharply in March. And consumers spent less at retail businesses, a sign that many were starting to feel the effects of the Social Security tax increase. Economists expect spending to stay weak in the April-June quarter as consumers adjust to smaller paychecks.

Ben Herzon, an economist at Macroeconomics Advisers, said the tax increases could shave roughly 1 percentage point from growth this year. He expects the government spending cuts to reduce growth by about 0.6 percentage point.

The drop in government spending cut growth in the January-March quarter by 0.8 percentage point. Three-fourths of that decline came from defense spending.

Already over the past two quarters, the decline in government spending has marked the sharpest six-month contraction since the Korean War ended in 1953, Capital Economics noted.

Income growth slowed sharply after a surge in the final three months of 2012. The fourth-quarter gain had reflected a rush to pay dividends and make bonus payments before higher tax rates took effect Jan. 1. Incomes were also held back last quarter by the higher Social Security tax.

The jump in consumer spending, along with slower income growth, meant that the saving rate fell to 2.6 percent of after-tax income in the first quarter. That was down from 4.7 percent in the October-December quarter.

The first-quarter growth figures will be revised twice more based on more complete data.

  • Your MoneyMore>>

  • NYC Denny's features $300 breakfast

    NYC Denny's features $300 breakfast

    Friday, August 29 2014 8:47 AM EDT2014-08-29 12:47:22 GMT
    Diner chain Denny's is opening it's first New York City location, complete with a big-city "deal".   How does a $300 breakfast sound?    The Denny's is located at the corner of Nassau and Spruce in Lower Manhattan's Financial District.  Along with its normal food you can get at just about any location in the rest of the country, this location will offer a Grand Slam breakfast with a bottle of 2003 Dom Perignon champagne.
    Diner chain Denny's is opening it's first New York City location, complete with a big-city "deal".   How does a $300 breakfast sound?    The Denny's is located at the corner of Nassau and Spruce in Lower Manhattan's Financial District.  Along with its normal food you can get at just about any location in the rest of the country, this location will offer a Grand Slam breakfast with a bottle of 2003 Dom Perignon champagne.
  • Teens want back-to-school gadgets, not clothes

    Teens want back-to-school gadgets, not clothes

    Thursday, August 28 2014 9:52 PM EDT2014-08-29 01:52:52 GMT
    For many students, school starts next week. So what will your teens be asking you to buy? Technology.That's right: they are willing to wear last year's clothes and instead spend money on the latest tech. Gone are the days of securing your status in high school with the right clothes. Now your teens need to own the newest tablet or smart phone and its accessories.
    For many students, school starts next week. So what will your teens be asking you to buy? Technology.That's right: they are willing to wear last year's clothes and instead spend money on the latest tech. Gone are the days of securing your status in high school with the right clothes. Now your teens need to own the newest tablet or smart phone and its accessories.
  • Conference call: your bathroom break

    Conference call: your bathroom break

    We asked several people what they do when they are on a conference call. Most of them answered: "The bathroom." Yes, according to a survey conducted by InterCall, 47 percent of 500 people admitted to taking a conference call from the bathroom.
    We asked several people what they do when they are on a conference call. Most of them answered: "The bathroom." Yes, according to a survey conducted by InterCall, 47 percent of 500 people admitted to taking a conference call from the bathroom.
Powered by WorldNow

KTTV FOX 11
1999 S. Bundy Dr.
Los Angeles CA 90025

Main: (310) 584-2000
News Tips? (310) 584-2025

Didn't find what you were looking for?
All content © Copyright 2000 - 2014 Fox Television Stations, Inc. and Worldnow. All Rights Reserved.
Privacy Policy | New Terms of Service What's new | Ad Choices