Thursday, May 31, 2012

Economy weaker than Democrats first thought!


WASHINGTON (AP) -- The U.S. economy is looking slightly weaker one day before a critical report on May job growth. 

Growth was a little slower in the first three months of the year than first estimated, largely because governments and consumers spent less and businesses restocked their supplies more slowly.
The number of people who applied for unemployment benefits rose to a five-week high last week. And a survey of private companies showed only modest hiring gains last month. 

Still, a softer job market hasn't caused Americans to scale back spending. Consumers spent more at retail stores in May than the same month last year, buying more clothes and Mother's Day gifts.
The mostly disappointing data sent stocks lower, keeping the Dow Jones Industrial Average on pace to record its first monthly loss since September. The yield on the 10-year Treasury note sank to 1.54 percent, a 66-year low.

The data showed that:
-- The U.S. economy grew at an annual rate of 1.9 percent in the first three months of the year, the Commerce Department said in its second estimate of January-March growth. That's lower than its initial estimate of 2.2 percent.
-- Weekly applications for unemployment aid rose 10,000 to a seasonally adjusted 383,000, the Labor Department said.
-- Private businesses added 133,000 jobs last month, according to a survey by payroll provider ADP. That figure disappointed most economists, who had hoped to see job growth accelerate after ADP's survey found that just 113,000 jobs were added in April.
Peter Newland, an economist at Barclays Research, said he was discouraged by the slowdown in first-quarter growth.
"This report does little to change the perception of an economy ticking along at a moderate pace but failing to break out into a full-on recovery with consistently above-potential growth," Newland said.
When the government issues its report Friday on May employment, economists expect it to say that employers added 158,000 jobs. That would be better than in the past two months but far below the winter's pace. They also expect no change in the unemployment rate, which was 8.1 percent in April.
Surveys show the economy is the top issue on voters' minds. Weaker growth and only modest job gains could give momentum to Mitt Romney, the Republican presidential challenger. Romney has made President Barack Obama's handling of the economy the central theme in his campaign.
The government makes three estimates of quarterly economic growth, or gross domestic product. GDP measures the output of all goods and services in the United States, from haircuts and coffee to airplanes and appliances.
A big reason growth slowed in the January-March quarter was that government spending at all levels fell at a 3.9 percent annual rate. That's the biggest decline in a year and nearly a full percentage point more than estimated last month.
Spending by state and local governments fell at a 2.5 percent annual rate, double the initial estimate.
Government spending has declined for six straight quarters. Many economists had thought the worst was over at the state and local level. "This throws some cold water on the view that state and local governments have already bitten the bullet and are now likely to add to, rather than subtract from, growth in 2012," said Diane Swonk, chief economist at Mesirow Financial.
Analysts think the economy is growing at a slightly faster rate this spring. Hiring has been steady and gas prices are lower, allowing consumers to spend more freely. Consumer spending drives 70 percent of economic activity. And more demand from consumers leads businesses to step up restocking, which also boosts growth.
Economists foresee growth at an annual rate of between 2 percent and 2.5 percent in the April-June quarter. Many expect the economy will maintain that pace for all of 2012, an improvement from last year's 1.7 percent growth.
Still, growth of 2.5 percent is typically enough just to keep pace with population changes. Most economists say it takes almost twice as much growth to lower the unemployment rate by 1 percentage point over a year.
The unemployment rate has fallen a full percentage point since August -- from 9.1 percent to 8.1 percent last month. Part of the season for the drop is that employers added 1.5 million jobs in that time. But another factor in the rate's decline is that some people have grown discouraged and given up looking for work. The government counts people as unemployed only if they're actively looking for a job.
In a more encouraging development, major retailers reported bigger-than-expected sales gains in May compared with a year ago. Consumers bought more clothing and took advantage of Mother's Day promotions. The modest but healthy gains followed a dismal showing in April.
During the January-March quarter, consumer spending grew at an annual rate of 2.7 percent. While that was the fastest pace since the end of 2010, it was down from the initial estimate of 2.9 percent. A key reason for the revision was fewer auto purchases.
Jennifer Lee, senior economist at BMO Capital Markets, pointed out that some components of GDP were revised higher. Among them was housing, which is beginning to show signs of a modest recovery.
Another positive development this month: Gas prices have fallen sharply.
A gallon of regular unleaded has dropped by 32 cents since peaking in the first week of April. U.S. retail gasoline prices fell Thursday to $3.62 a gallon, according to auto club AAA.
Experts see gas falling to at least $3.50 by July 4.

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