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Consumer spending, economy growing, Fed reports

Thu., May 1, 2014

WASHINGTON – The nearly 5-year-old recovery stalled in the first quarter, but the Federal Reserve said consumer spending and economic growth are picking up momentum following a harsh winter.

In an upbeat assessment, the Fed said Wednesday that it would continue to trim its bond purchases, aimed at lowering long-term interest rates, at a pace that would end the stimulus program by year’s end.

The central bank left its benchmark short-term interest rate near zero and made no other changes to its policy.

The Fed’s unanimously adopted statement was issued at the conclusion of a two-day meeting and just hours after the Commerce Department reported a much-weaker-than-expected estimate of first-quarter economic growth.

The report showed that gross domestic product, or total economic output, expanded at a mere 0.1 percent annual pace in the first three months of the year, one of the weakest growth rates since the recovery began in mid-2009. GDP rose at a solid 3.4 percent annual rate in the second half of last year.

The bigger-than-expected slowdown – analysts had forecast growth of about 1 percent on average – was mostly the result of a sharp decline in business investment and net exports. Analysts said the unusually cold conditions across much of the country contributed to the pullback in residential building and investments for plants and equipment, something that the Fed also underlined.

Fed officials and many private economists, however, predict economic growth will turn back up this quarter and strengthen as the year progresses.

Even with frigid weather dampening home-building and car sales earlier this year, Wednesday’s report showed consumer spending slowed only modestly from the fourth quarter, thanks to stronger outlays for health care and other services.

“As the weather has returned to seasonal norms, we have already seen a marked improvement in the monthly data for March, which suggests that there will be a big rebound in second-quarter GDP growth,” said Paul Ashworth, chief U.S. economist at Capital Economics.

After a modest and choppy recovery, many analysts think the economy could see significantly stronger activity this year – about 3 percent versus an average of a little more than 2 percent since the recovery began.


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