March 1, 2014 in Business

Economy should stay strong in 2014, experts say

Martin Crutsinger Associated Press
 

WASHINGTON – When the weather warms up, so, too, will the U.S. economy.

That, at least, is the prevailing view of economists, who shrugged off a government report Friday that the economy was weaker last quarter than first thought.

Severe winter weather is probably slowing growth again this quarter. But as the chill and snow fade into memory, long-delayed spending by consumers and businesses could invigorate the economy starting in spring.

“Weather is having an impact on a lot of the data,” said Doug Handler, chief economist at IHS Global Insight. “We will likely see a boost from pent-up demand in coming weeks.”

In the view of most analysts, the snowstorms and extreme cold have exerted a harmful but only temporary effect on the economy. That belief helps explain why Federal Reserve Chair Janet Yellen signaled this week that the Fed will likely continue reducing its stimulus for the economy throughout 2014.

The Commerce Department said Friday that the economy grew at a 2.4 percent annual rate last quarter, in part because consumers didn’t spend as much as initially estimated. Initially, Commerce had estimated that the economy expanded at a 3.2 percent rate in the October-December quarter.

The damage from consumer spending has been especially acute because it accounts for about 70 percent of economic activity. Economists foresee further spending weakness in the first three months of this year largely because of the weather.

“Due to Mother Nature, quarter one is not going to be anything worth writing home about,” Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note. “The rebound … and all of that pent-up demand won’t show up until the second quarter.”

A separate report Friday also provided hope for a stronger economy in coming months. The University of Michigan’s monthly index of consumer sentiment showed that while bad weather kept consumers away from retail outlets, it hasn’t shaken their confidence.

The index posted a reading of 81.6 in February, up slightly from January’s 81.2. The survey found that the cold weather had the biggest effect among consumers over age 65, who tended to worry about higher utility bills. By contrast, consumers under age 35 felt better able to offset higher utility costs with income gains.

For all of 2013, the economy grew at a lackluster 1.9 percent. Analysts think growth will rebound in 2014 to as high as 3 percent.

Growth was held back last year by higher federal taxes and government spending cuts enacted to combat budget deficits. Economists estimate that the squeeze from the government subtracted about 1.5 percentage points from growth last year. If growth does reach 3 percent this year, it would be the strongest performance since the recession ended almost five years ago.

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