The US economy expanded at a slower rate in the first quarter than originally estimated, the Commerce Department reported on Thursday, partly because of a slight decrease in the pace of consumer spending.
However, the status of the recovery still hinges on the prospects for job growth, analysts said.
The revised measure of the overall economy grew at an inflation-adjusted annual rate of 3 percent in the first quarter, down from the earlier estimate of 3.2 percent, the department said. Economists had forecast growth of 3.5 percent.
“The economy is still showing above-trend growth in the first quarter, and we think the economy is continuing to grow,” said Michael Feroli, US economist for JP Morgan Economics.
The 3 percent growth follows 5.6 percent in the fourth quarter of last year and 2.2 percent in the third.
One contributing factor to the revision was consumer spending, which was lowered to 3.5 percent, from 3.6 percent. Other factors in the revision included a decline in the purchases of business equipment and software and a sharp increase in imports, which helped widen the trade deficit. Spending on durable goods, like cars, grew 12.2 percent in the first quarter, compared with 0.4 percent in the previous three months.
With more than 70 percent of the economy composed of consumer spending, economists are pinning their hopes for a sustainable economic recovery on robust purchasing by households, much of which depends on consumer sentiment and job creation.
Joshua Shapiro, chief US economist for MFR, an economics consultancy, said that the latest GDP figures confirmed his view that the economy was growing at a moderate pace, albeit aided by government stimulus. Shapiro said he expected overall annualized growth of between 2.5 percent and 3 percent for the rest of the year.
The biggest debate, he said, is over the path of the recovery of the labor market and how it helps the ability of consumers to promote growth.
“An enormous amount hinges on the rate of job growth that we are going to see on a sustained basis,” he said.
The economy added 290,000 jobs last month — the largest gain in four years — across a broad swath of industries.
Still, the Labor Department said yesterday that initial jobless claims fell slightly to 460,000 in the week of May 22, down by 14,000. While the weekly level exceeded analysts’ expectations, total jobless claims still inspired a sober outlook.
“We continue to believe that an imminent and sustained burst of hiring sufficient to meaningfully impact the unemployment rate remains elusive,” Dan Greenhaus, the chief economic strategist for Miller Tabak & Co, wrote in a research note.
The latest job figures have been inflated by the hiring of temporary workers for the census, and Shapiro said those workers would continue to add to payrolls in the next few months.
The first-quarter GDP rate also showed downward revisions of government spending. Federal government spending grew at an annualized rate of 1.2 percent in the first quarter, down from the original estimate of 1.4 percent. Local and state governments continued to cut spending for the third consecutive quarter.
Greenhaus said he believed any additional federal stimulus might be directed to state and local governments.
Feroli also said that Thursday’s report revised labor income in the fourth quarter to US$7.74 trillion, from about US$7.77 trillion.