WASHINGTON — The U.S. economy’s 2.5 percent annual growth rate from January to March, which the government reported Friday, reflected surprisingly strong consumer spending that was weighed down by continued declines in government spending, especially on defense.
After a dismal growth rate of just 0.4 percent in the final three months of 2012, which were marked by political strife and uncertainty over the tax code, mainstream economists had expected first-quarter gross domestic product to grow at a rate of 3 percent or higher.
It didn’t happen.
“GDP growth in the first quarter was on the soft side, largely due to big cuts in government spending. Fiscal austerity is in full swing and will intensify this spring and summer,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics.
In effect, the good news from strong consumption and businesses replenishing their shelves was offset by the weight of declining government spending through the automatic budget cuts known as sequestration.
“This weight is getting heavier, and thus growth will be uncomfortably weak in coming months,” Zandi said.
Before the sunlight, there’s likely to be rain for much of this year. The first-quarter report from the U.S. Commerce Department spans only a single month of the budget cuts, which began in March.
Economists think the current quarter, which ends June 30, will show greater effects from the sequester.
Inventory, a term for how businesses replenish their stock, contributed to growth from January to March, after dragging against growth in late 2012. Economists expect it to hurt growth again as consumers grow more cautious amid soft hiring and growth numbers.
Government spending fell by another 4.1 percent from January to March, on top of a very sharp decline of 7 percent the previous quarter.
The Bureau of Economic Analysis, part of the Commerce Department, reported Friday that spending on national defense had declined at an annual rate of 11.5 percent in the first quarter, on top of a decline at a rate of 22.1 percent in fourth-quarter 2012.
One puzzling point in the report was the strong numbers for personal consumption spending, which grew at an annual rate of 3.2 percent, compared with 1.8 percent in the last three months of 2012.