WASHINGTON – Fears about China, shrunken oil prices and turbulent markets held the U.S. economy to a sluggish pace at the start of the year. But the gloom seems to have lifted.
Economists think that the gross domestic product — the broadest gauge of economic activity — rebounded in the spring to more than twice the growth rate of the first three months of the year.
GDP grew at a scant 1.1 per cent annual pace in the January-March quarter but is thought to have accelerated to a 2.6 per cent rate in the April-June quarter, according to economists surveyed by data firm FactSet.
On Friday, the Commerce Department will provide its first of three estimates of GDP growth for the April-June quarter.
The big driver for the rebound is believed to have been consumer spending. The pace of that spending had slowed to its weakest pace in two years during the January-March quarter. Analysts have forecast that it accelerated sharply in the spring, possibly to its fastest pace in a decade. Because consumers account for more than two-thirds of economic activity, a rebound in their spending has an outsize effect on GDP growth.
The consumer gain will be offset somewhat by a slowdown by stockpiling by businesses — an area of the economy that has held back growth the past three quarters. Business investment, which has also weakened because of cutbacks by energy companies, is thought to have increased slightly last quarter. But government spending to expected to have been a drag on growth.
The new GDP report may be used by both Democrats and Republicans to try to score political points. Republicans contend that GDP over the past seven years has grown at the weakest pace of any post-World War II recovery and blame the Obama administration’s policies. Democrats point instead to structural changes in the U.S. economy and to obstructionism by Republican leaders in Congress who have blocked spending initiatives.
Analysts predict that the economy will grow at an annual rate slightly above 2 per cent in the second half of the year — a modest pace in line with the pattern that’s existed since the recovery began in June 2009. Still, even tepid growth would be preferable to the possible recession that some had feared might be nearing after the economy’s woeful start to the year.
After stabilizing in February, markets went into a second nosedive in June after Britain voted to leave the European Union, an unexpected outcome that raised fears that the already weak global economy might slide further.
On top of that, job growth in the United States slowed sharply in April and May. But the job market came roaring back with 287,000 additional jobs in June, the biggest monthly gain since October.
“It is amazing how resilient the U.S. economy has been in the face of all these uncertainties and shocks,” said Mark Zandi, chief economist at Moody’s Analytics. “The job market is just incredible, and those gains will boost incomes and support stronger consumer spending in the second half of the year.”
The Federal Reserve took note of the improving economy after it ended its latest policy meeting this week, saying “near-term risks to the economic outlook have diminished.”
Though the Fed kept interest rates unchanged, economists said the central bank’s brighter outlook might clear the way for a rate increase as soon as September. But most see only one modest Fed rate hike this year, which would be unlikely to slow the economy.