Economy expected to roar in '14
WASHINGTON — Expect a dreary report on Wednesday when the government issues its first estimate of how fast the nation's economy grew in the January-March quarter. Brutal weather kept consumers and businesses in hibernation for much of the winter and likely slowed growth to a scant annual pace of just 1.1 percent.
Yet thanks to a bounce-back in consumer spending, business investment and job growth, analysts foresee a strengthening economy through the rest of the year.
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.
Most analysts think annual economic growth has rebounded to around 3 percent 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 percent, 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 expect unemployment to fall to 6.2 percent by the end of this year from 6.7 percent 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 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 on Tuesday found that while 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 on 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 percent of the 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 percent.
“If you take good income growth and pent-up demand and put them together, you get good consumer spending, and that spills over into the rest of the economy,” Naroff said.
Economists are expressing optimism even though one key sector, housing, has slowed. Home sales have been depressed in recent months by severe weather, higher prices and a shortage of available houses.
Yet even in this area, there was hopeful news this week: More Americans signed contracts to buy homes in March, the National Association of Realtors said. It was the first increase since June and a sign that the housing market might pick up after a sluggish start to the year.
That was the latest hint of encouragement that as the severe winter fades into the past, areas of the economy are reviving and consumers may spend freely again. Retail sales for March rose by the most in 18 months, led by gains in autos and furniture. Sales had fallen in December and January.
Analysts say a slowdown in businesses' restocking of supplies and a wider trade deficit contributed to the slowdown in the January-March quarter. But they think those factors are diminishing.
Analysts at Macroeconomic Advisers predict that growth will rebound to a 3.5 percent annual rate in the current quarter. They think it will be fueled in part by “a weather-related bounce back” and by solid export growth, which would narrow the U.S. trade gap.
“There are a number of positives looking ahead,” economists at JPMorgan Chase wrote in a research note. “Many of the monthly indicators perked up late in the first quarter, which sets up a favorable trajectory headed into the second quarter.”
JPMorgan is forecasting that growth will hold steady at a solid 3 percent annual rate for the final three quarters of the year as a whole.