Economic Growth Rate Slower than Anticipated for Q1 2013

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economic growth lower than expected After a revision brought on by unexpectedly low consumer spending, the U.S. economy is reported to have grown at an annual rate of 1.8 percent during Q1 2013, down from the pre-revision 2.4 percent. However, the rate is still significantly faster than the 0.4 percent rate during Q4 2012. The revision may also change current predictions of growth for Q2, which currently is already expected to be no more than 2 percent.

The revision was largely due to a drop in consumer spending to an annual rate of 2.6 percent, down from an estimated 3.4 percent in May. Consumer spending is the primary driver of economic activity, accounting for 70 percent of the economy. A major aspect of the revisions came from lower estimates for spending on services like travel, legal, health care, and utilities.

Export growth also took a hit and business spending was sharply weaker than initial estimated suggested. The large drop in spending on buildings was the primary cause for the downgrade. The revisions also suggest that the Social Security tax increase began affecting consumer spending in Q1 as opposed to the predictions of many economists not expecting the impact to arrive until Q2.

The biggest negative factor on first quarter growth was weakened government spending, which fell at an annual rate of 4.8 percent during Q1, taking 0.9 percentage points of growth with it. Economists have predicted that economic growth may rebound to a rate of about 2.5 percent during Q3 2013 and possibly rise to more than 3 percent during Q4. The Fed predicts economic growth will average 2.3 percent to 2.6 percent this year and accelerate to as much as 3.5 percent in 2014.

 

By Joshua Bjerke