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Economy is slowed by high gas prices, storms and budget cuts in first quarter

WASHINGTON — Higher gas prices, severe storms and belt-tightening at the Pentagon slowed the economy in the first three months of the year. Most economists say the weak January-March growth was a temporary setback that will be followed by stronger expansion the rest of the year.

But will it?

Gas prices keep rising, real estate remains depressed and the federal government seems about to adopt some of the deepest spending cuts in a generation. Those spending cuts will also filter down to state and local governments, already squeezed by their own budget crises.

All of that could put a drag on the U.S. economy through the rest of the year, despite a hiring pickup.

"Just about every piston in the engine lost its power during the quarter," said Sung Won Sohn, an economist at California State University. "I don't think all those negative factors are going to disappear."

The economy grew at a 1.8 percent annual rate in the January-March quarter, after 3.1 percent growth in the previous quarter, the Commerce Department said Thursday.

U.S. growth, as gauged by the gross domestic product, is the output of all goods and services.

To calculate GDP, the government adds consumer spending, business investment and government spending — and then subtracts the trade deficit.

A big reason for the slower growth at the start of this year is the sustained surge in gas prices, which is siphoning money away from other purchases. Unlike other consumer spending, gasoline purchases deliver less benefit for the U.S. economy. About half of the revenue flows to oil-exporting countries.

Consumers paid an average of $3.89 for a gallon nationally Thursday, 30 cents more than a month ago and $1.02 more than a year ago. Federal Reserve Chairman Ben Bernanke and some other economists are predicting that gas prices will stabilize and the economy will grow at a 3 percent pace in each of the next three quarters.

Oil analyst Jim Ritterbusch predicts average gas prices nationally will peak at $4.25 a gallon by the end of May. At that point, he says, people will probably cut back on driving, and gas prices should fall to $3.75 a gallon over the summer. By year's end, Ritterbusch says, prices should fall to $3.25 a gallon.

The harsh winter weather in the January-March quarter also kept people from shopping. And it forced builders to delay construction projects. That led to the deepest cuts in commercial construction since late 2009.

Economists foresee a slight bounce-back in spending on home building and commercial construction this spring.

And the federal government cut military spending at an annualized rate of 11.7 percent last quarter — the deepest cut since 2005. State and local government spending fell 3.3 percent. Economists don't see it improving soon.

Other indicators

• Homes: Sales agreements for homes rose 5.1 percent last month, National Association of Realtors said Thursday, but the rise was uneven nationally.

Jobs: The Labor Department said applications for unemployment benefits jumped 25,000 to a seasonally adjusted 429,000 for the week ending April 23; it's the highest total since January.



Other indicators

in the news

Homes: Sales agreements for homes rose 5.1 percent last month, the National Association of Realtors said Thursday, but the rise was uneven nationally.

Jobs: The Labor Department said applications for unemployment benefits jumped 25,000 to a seasonally adjusted 429,000 for the week ending April 23; it's the highest total since January.

Hed goes here Other indicators

Homes: Sales agreements for homes rose 5.1 percent last month, National Association of Realtors said Thursday, but the rise was uneven nationally.

Jobs: The Labor Department said applications for unemployment benefits jumped 25,000 to a seasonally adjusted 429,000 for the week ending April 23; it's the highest total since January.

Economy is slowed by high gas prices, storms and budget cuts in first quarter 04/28/11 [Last modified: Monday, November 7, 2011 5:26pm]

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