Traverse City Record-Eagle

Business

August 1, 2013

U.S. economy grew at sluggish 1.7 pct. pace in Q2

WASHINGTON (AP) — The U.S. economy grew from April through June at an annual rate of 1.7 percent — a sluggish pace but stronger than in the previous quarter. Businesses spent more, and the federal government cut less, offsetting weaker spending by consumers.

The government on Wednesday sharply revised down its estimate of growth in the January-March quarter to a 1.1 percent annual rate from a previously estimated 1.8 percent rate.

Though growth remains weak, the pickup last quarter supports forecasts that the economy will accelerate in the rest of the year. Economists think businesses will step up investment, job growth will fuel more consumer spending and the drag from government cuts will fade. If so, the Federal Reserve could scale back its stimulus later this year.

The April-June growth figure indicates that “the recovery is gaining momentum,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

During the April-June quarter, businesses increased their spending 4.6 percent after cutting by the same amount in the January-March period. And spending on home construction grew 13.4 percent, in line with the previous quarter.

At the same time, the federal government cut spending only 1.5 percent after slashing it 8.4 percent in the first quarter. And state and local governments spent more for the first time in a year.

Still, government cutbacks have weighed heavily on the economy the past 12 months. Over the past four quarters, the economy has grown at just a 1.4 percent annual rate. But if you exclude federal, state and local governments, the private sector has expanded at a much stronger 2.3 percent rate.

The “ongoing fiscal drag is masking private sector health,” said Joseph LaVorgna, an economist at Deutsche Bank, said.

The weaker growth in consumer spending last quarter was significant because consumers account for about 70 percent of the economy. And a surge in imports reduced growth by the most in three years.

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