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Growth keeps coming in softer than expected
03/01/2011 2:28 pm EST
Last week the GDP and durables numbers showed a U.S. economy that is still growing but that is growing a little more slowly that projected. That’s what the consumer spending numbers released yesterday, February 28, show too.
I had expected the U.S. economy to accelerate in the first half of the year before leveling off to sustained growth of 3% or so in the second half.
Now? Too early to throw out that scenario. But early enough to go, Hmmm….
In January, according to data from the Commerce Department, consumer spending rose by just 0.2%. (The Commerce Department also revised the increase in consumer spending in December down to 0.5% from the 0.7% reported a month ago.)
The January increase was the smallest since June. Part of that was undoubtedly the effect of the winter storms during the month. But some of it also seems to have been the result of higher food and fuel prices cutting into eating out and shopping. And, horror of horrors, U.S. consumers look like they might have actually saving—rather than spending-- some of the money from the payroll tax cuts passed by the lame duck Congress in December. Incomes climbed 1% for the month, but the savings rate increased to 5.8% from 5.4% in December. What concerns me is that while the weather was better in February than January, the turmoil in Libya was worse than that in Egypt and oil prices that had gone up on worries over disruption in Egypt, a relatively minor oil producer, went up much more on worries over disruption in Libya, a major oil producer. If consumers were nervous in January, it’s likely that they were even more nervous in February.
On the plus side, manufacturing, which has led and now sustains the recovery, still seems to be going strong. The Institute for Supply Management’s regional survey for Chicago, released on February 28, climbed to 71.2 in February from 68.8 in January. That’s the highest reading for the survey—any number above 50 shows that economic activity is expanding—since July 1988. (More on manufacturing and today's data for that sector in my next post.)
I think it’s too early to say the economy won’t accelerate in the first half of 2011. But it does look like jobs cuts from the state budget crisis, the continued housing slump, higher oil prices, and higher food prices are all taking a toll. We just can’t tell how strong the downward pressure on growth will be.
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