GDP growth slows to 1.8% in 1Q
Higher prices for gas and food coupled with a weak jobs market and increased concerns of rising inflation hindered the economic recovery throughout the first quarter. The Commerce Department said Thursday the seasonally adjusted gross domestic product for the first three months of 2011 rose 1.8%, roughly inline with most analysts' estimates but down significantly from 3.1% for the fourth quarter. Growth in the housing sector fell 4.1% during the quarter after climbing at a rate of 3.3% during the final three months of 2010. Paul Ashworth, chief U.S. economist at Capital Economics, said the slower GDP figure for the first quarter was "due principally to the surge in energy prices, adverse weather, and a sizeable drop in public-sector spending." The Bureau of Economic Analysis attributed the lower rate of growth to a deceleration in personal consumption, big cuts in federal spending, lower nonresidential investment and decreased exports. Consumer spending increased by 2.7% in the first quarter, down from 4% growth for the final three months of 2010. Federal spending fell nearly 8% in the quarter compared with a 0.3% drop in the fourth quarter. Exports increased at a rate of 4.9% in the quarter while imports rose 4.4%. For the fourth quarter, exports climbed 8.6% while imports fell 12.6%. "Although consumption growth slowed to 2.7%, from 4%, the monthly figures had suggested an even more severe slowdown," Ashworth said. "The 3.3% contraction in state and local government spending reflects the ongoing budget problems that will continue to be a drag on the overall economy for some time yet." On Wednesday, Federal Reserve Chairman Ben Bernanke said the U.S. economy is slowly digging out of the financial crisis of the past few years and the central bank now expects GDP growth of about 3.1% to 3.3% this year. "All things considered, it could have been worse," Ashworth said. "Nevertheless, in a quarter when the economy began to benefit from additional monetary and fiscal stimulus, we had originally expected a lot more." Write to Jason Philyaw.