Economy grew in spring, but at anemic pace of 1.1%
Business cuts led tepid results, but experts predict strong summer.
WASHINGTON — The U.S. economy expanded at a sluggish 1.1 percent pace this spring as businesses sharply reduced their stockpiles of goods and spent less on new buildings and equipment. Yet most analysts forecast much faster growth in summer and fall, fueled by healthy consumer spending.
Friday ’s estimate i s slightly below the Commerce Department’s previous figure of 1.2 percent growth as measured by gross domestic product, the broadest gauge of the economy.
Consumers offset the corporate cutbacks in the April-June quarter by spending at the fastest pace in six quarters, Commerce said Friday. That suggests steady job growth and modest pay gains are making Americans more confident and willing to spend.
“The very slight downward revision ... isn’t too concerning, especially given that the more recent data point to a strong rebound in the third quarter,” Steve Murphy, an economist at forecasting firm Capital Economics, said in a research note.
The Fe d e r a l Re s e r ve Ba nk of Atlanta currently forec asts growth will jump to a 3.4 percent annual pace in the July-September quarter.
Still, the economy expanded at a lackluster 1 percent annual pace in the first half of 2016, following growth of 2.6 percent last year. The sluggish first half is a stark reminder of the economy’s inability to achieve strong, sustainable growth since the recession ended seven years ago. It has been the slowest recovery since World War II, and followed the worst downturn since the 1930s. Growth hasn’t topped 3 percent for a full year since 2005.
The economy stumbled in the first three months of the year as consumers spent cautiously. Slow overseas growth and a stronger dollar held back exports. Stock markets gyrated amid signs that China’s economy, the second-largest in the world, was slowing.
Those headwinds likely caused U.S. businesses to cut back on their stockpiles and slow their spending on new equipment in the second quarter. The decline in stockpiling was the fastest since the autumn of 2011.
When companies clear out their inventories, they order fewer new goods, weighing on growth.
State and local governments scaled back their spending on new buildings and imports rose, rather than fell, in the April-June quarter.
Consumers ramped up their spending by 4.4 percent, slightly faster than last month’s report. T h a t ro b u s t d e mand sh o u l d encourage businesses to restock t h e i r wa r e h o u s e s a n d s t o r e shelves.
New home construction should also quicken growth. Home building and renovations weighed on the economy in the second quarter, but sales and construction of new homes has been healthy.