WASHINGTON – It was likely a winter of discontent for the U.S. economy.
The Commerce Department on Wednesday will release its first estimate of growth in the January-March period. All signs point to a disappointing performance during the quarter, when the country was hit with a basket of setbacks: severe snowstorms in the East, a port dispute on the West Coast and a stronger dollar that hurt American manufacturers.
Economists were forecasting growth of just 1 per cent for the gross domestic product, according to a survey by data firm FactSet. That would be down from 2.2 per cent in the fourth quarter and the weakest showing in a year.
They are hopeful, however, that a rebound is in store this spring and summer. Economists predict that solid employment gains and rising consumer spending will help spur stronger growth.
In fact, many economists believe the economy will expand enough this year to give the country the strongest growth in a decade.
“We expect the benefits of the lower energy prices to now kick in and boost consumer spending,” said Mark Zandi, chief economist at Moody’s Analytics. “It takes a while for people’s savings from the lower energy prices to build up enough so that they feel like going out and spending.”
The government’s first of three estimates of GDP — the country’s total output of goods and services — will be released just as the Federal Reserve begins its second day of meetings. It will release its latest policy statement Wednesday afternoon.
The Fed is expected to acknowledge the economic slowdown in the statement, while at the same time emphasizing its belief that the factors responsible were largely temporary.
At the Fed’s March meeting, the central bank opened the door to a rate increase this year by no longer saying it would be “patient” in moving to raise interest rates. While economists had thought the change could mean the Fed might hike rates for the first time at the June meeting, the view now is that the weaker economic activity has pushed off the first rate increase until at least September.
Many economists forecast growth to rebound to around 3 per cent in the current quarter and hold steady in the second half of the year. The International Monetary Fund earlier this month projected that the U.S. economy would grow 3.1 per cent this year. While that is a half-point lower than its January forecast, it would still give the United States the strongest annual growth since 2005, two years before the country fell into the worst recession since the 1930s.
The Great Recession ended nearly six years ago in June 2009, but growth since the recovery began has been sub-par, averaging just 2.2 per cent. Despite the weak start, analysts believe 2015 will be the year when growth accelerates to a more respectable level.
Part of that optimism reflects strong employment growth over the past year, which should help support consumer spending. In addition, economists believe the big drop in the price of gasoline will act like a tax cut, giving people more money to spend on other items.
Other factors that held back growth in the first quarter are dissipating as well. The winter is over, and the end of the labour dispute at West Coast ports has restored supply chains. Cutbacks in oil and gas drilling activity, caused by the plunge in energy prices, may also moderate as oil prices start rising.