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Housing slump to weigh heavily economy { June 1 2007 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/content/article/2007/05/31/AR2007053100561.html?hpid=moreheadlineshttp://www.washingtonpost.com/wp-dyn/content/article/2007/05/31/AR2007053100561.html?hpid=moreheadlines
Despite Slow Start to Year, Economic Growth Begins to Rebound
By Nell Henderson
Washington Post Staff Writer
Friday, June 1, 2007; D03
The U.S. economy got off to a lousy start this year but appears to have perked up more recently.
Economic growth slowed to a crawl in the first three months of the year, as home building plunged and the trade gap worsened, while businesses turned more cautious about restocking their shelves, the Commerce Department said yesterday.
The nation's gross domestic product, the value of all economic output, grew at a measly 0.6 percent annual rate from January through March, the slowest quarterly rate in more than four years and less than half the 1.3 percent pace estimated in late April, the department said.
But the initial data for more recent months show improvement, which explains why financial markets shrugged off the sour news. Many analysts predict the economy will rebound this quarter, growing at moderate annual rate of 2 to 3 percent.
"The first quarter is likely to be the weakest quarter of the year," said Drew T. Matus, a senior economist with Lehman Brothers.
Among the reasons for optimism: Construction spending rose slightly in April, with increases in non-residential building by businesses and government offsetting further declines in home construction, the Commerce Department said yesterday in a separate report. Factory output also rose in April, as did new orders for big-ticket durable goods. And the job market has remained tight in April and May, other figures show.
Many economists also expect U.S. exports to rebound after falling at a 0.6 percent annual rate in the first quarter. Several analysts said the drop seemed at odds with the weakening dollar, strong global economic growth overseas and the slew of U.S. companies reporting buoyant profits from overseas sales. The decrease also marked a sharp reversal after booming export growth last year.
The decline in exports was probably a fluke, said Nariman Behravesh, chief economist at Global Insight. He said the number would either be revised higher as more data become available, or it would be followed by a jump in exports for this quarter.
Forecasters were also encouraged by the vibrancy of consumer spending, which rose at a rapid 4.4 percent annual rate in the first quarter, the fastest quarterly rate in a year.
The Commerce Department's first-quarter growth report "overstates the weakness in the economy," Behravesh said. His comments echo those of Federal Reserve policymakers, who expect the pace of economic growth to pick up in coming months, according to minutes of their most recent meeting May 9.
Fed officials did think the housing slump "was likely to continue to weigh heavily on economic activity through most of this year -- somewhat longer than previously expected," the minutes said.
Spending on home construction fell at a steep 15.4 percent annual rate in the first three months of the year, shaving nearly a full percentage point off the economy's growth rate and marking a sixth consecutive quarterly decline, the Commerce Department report said.
Fed policymakers worried at their meeting that a significant decline in home prices might dampen consumer spending more than currently expected, the minutes said. But, given other recent signs of improvement, they thought the risks of weaker economic growth appeared "to have diminished slightly."
The report on the gross domestic product and the Fed minutes strengthened investors' expectations that the Fed would hold its benchmark short-term interest rate steady through June and possibly for the rest of the year.
© 2007 The Washington Post Company
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