Saturday, April 27, 2013

What's the Economy's Big Problem? In a Word: Washington!

CNBC ^ | Fri. April 26, 2013 | John W. Schoen

Washington's efforts to balance the budget are holding back the wobbly economic recovery.

After "fiscal cliff" fears brought the economy to a near standstill late last year, many forecasters had expected growth to come roaring back in the first quarter as consumers made up delayed spending and businesses filled deferred job openings and restocked depleted inventories.

But the Commerce Department's latest read on growth Friday showed U.S. gross domestic product expanding by 2.5 percent in the first three months of the year, less than the 3.1 percent pace forecasters had expected.

Analysts say deficit-cutting moves, including a 2 percent payroll tax hike that kicked in Jan. 1 and the ongoing the federal budget cutting known as sequestration, are beginning to take a bite out of growth. That's expected to continue later this year.

"The economy continues at a brisk walk at best," said Joel Naroff, chief economist at Naroff Economic Advisors. "With the tax hikes reducing disposable income and sequestration restraining federal spending, don't expect strong economic growth anytime soon."

"Whatever your view is on government spending, it's going to be a headwind for growth," said Ralph Schlosstein, CEO of Evercore Partners.

The weakness appeared to worsen late in the quarter, with a much slower-than-expected performance by the job market last month. After averaging more than 200,000 jobs a month in January and February, the pace of job creation fell to 88,000 in March. More recent data have pointed to marked slowdown in retail sales, industrial production and orders for durable goods
(Excerpt) Read more at cnbc.com ...

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