March 30, 2012 in Business

U.S. growth may slow

After solid final three months in 2011, GDP may rise just 2 percent this quarter
Martin Crutsinger Associated Press
Jobless rate at four-year low

Jobless numbers: The number of people seeking U.S. unemployment benefits dropped last week to the lowest level in four years, adding to evidence that the job market is strengthening. Applications for weekly unemployment benefits fell by 5,000 to a seasonally adjusted 359,000, the Labor Department said Thursday. That’s the fewest applicants since April 2008. The four-week average, a less volatile measure, declined to 365,000 – the fewest for that measure since May 2008.

Mortgage rates: The average U.S. rate on the 30-year fixed mortgage fell back below 4 percent this week, staying near historic lows. Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan dropped to 3.99 percent from 4.08 percent last week. Last month, the rate touched 3.87 percent, the lowest since long-term mortgages began in the 1950s.

Commodities: The price of oil fell to a six-week low Thursday after the prime minister of France said there was a “good chance” that the U.S. and Europe will agree to release some of their oil reserves. Oil ended the day at $102.78, down $2.63. Gold fell $5.70 to $1,652.20 per ounce. It has fallen 3 percent this month.

WASHINGTON – The U.S. economy grew at an annual rate of 3 percent in the final three months of 2011, the best pace in a year and a half. But that growth has likely slowed in the current quarter.

Businesses have been restocking their shelves more slowly and shipping fewer long-lasting manufactured goods. In addition, Europe’s debt crisis and weaker growth in Asia have slowed demand for U.S. exports.

Stronger hiring in the first two months of the year probably hasn’t offset those weaknesses. That’s because Americans’ pay has barely kept pace with inflation even as gas prices have spiked. So consumer spending, which drives about 70 percent of economic activity, probably hasn’t increased much from the end of last year.

Most economists expect growth to pick up later this year as further hiring lifts the economy.

The Commerce Department reported no change Thursday in its previous growth estimate for the October-December quarter. The 3 percent annual rate was the strongest since the spring of 2010. Slower growth in exports than previously estimated was offset by stronger business investment.

Still, economists expect growth has probably slowed to 2 percent or less in the current January-March quarter.

A key reason for that is businesses haven’t been restocking their shelves as fast as they did at the end of last year. Many had slashed inventories over the summer out of fear that the economy was on the verge of another recession. When that didn’t happen, many stepped up restocking. Inventory building was a key driver of growth in the October-December quarter.

Even though businesses are still replenishing their shelves, the pace has likely slowed. That has likely slowed growth this quarter.

Businesses are also investing less in machinery and equipment this year after a tax credit expired at the end of last year. Orders for durable goods plunged in January. Though orders rebounded in February, that increase didn’t offset the entire January decline.

And shipments of core capital goods, a gauge of business investment, grew sluggishly in the three months that ended in February, economists said. That’s also likely holding back growth this quarter.

For the fourth quarter, consumer spending expanded at an annual rate of 2.1 percent, led by strong gains in car sales.

Business investment rose at a 5.2 percent annual rate. It was pushed higher by companies rushing to make equipment purchases before investment tax breaks expired at the end of the year. That was nearly double the estimate the government made a month ago.

But this new-found strength was offset by a reduction in the estimate of export growth. U.S. exports grew at an annual rate of 2.7 percent in the fourth quarter, down from an estimate of 4.3 percent a month ago.

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