The Economy: U.S. growth slows following tepid first quarter

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WASHINGTON >> The U.S. economy grew at its weakest quarterly pace in two years between the months of January and March, new government data showed Thursday.

The nation's gross domestic product expanded just 0.5 percent as consumers slowed their spending and businesses cut back on investments with a severity not seen since the financial crisis.

The relatively tepid growth indicates that the economy is still being held back by apprehension and caution — even as global chaos diminishes, employers continue hiring and the stock market recovers from early-year turmoil. Most analysts say that the United States faces little risk of recession, but the economy is stuck in second gear, providing a picture of contradictions for investors and policymakers.

Among those contradictions: Wages are beginning to rise, and cheaper gasoline is providing an extra influx of cash, but most Americans have cut back on consumption since the middle of last year.

Corporate profits continue

Meanwhile, a dollar that has weakened slightly in recent months has helped to boost profits for America's corporate giants — from airlines to tech companies. But those firms are holding off on investing in the basic goods they need, including computers, machinery and offices. Nonresidential investment — a gauge of that spending — plunged 5.9 percent in the first quarter, the sharpest decline since 2009.

In the latest quarter, the trade deficit was also a slight drag on growth.

Companies are likely trimming back in response to sluggish global demand. A few could also be pushing investments overseas, spurred by the United States' high corporate taxes. The cutbacks, too, are attributable to massive hemorrhaging in the oil and gas sector, where low prices have all but paralyzed investment. Investment in mining plunged 86 percent in the first quarter, the greatest decline on record, going back to 1958.

"The business investment is down, and again, it's this uncertain environment," said Dan North, a chief economist at Euler Hermes, a credit insurance company. He said the same uncertainty is holding back consumers: "They are thinking: Why am I going to buy a washing machine in this sort of crummy economy?"

Data released today by the U.S. Department of Commerce show first quarter 2016 real GDP grew 0.5 percent following a gain of 1.4 percent in the final quarter of 2015.

Overall, the report shows broad weakness across many parts of the economy. The pace of growth for the economy has steadily slowed over the past four quarters. That slowing pace of growth suggests the economy remains vulnerable hence the risk of recession remains somewhat elevated.

In the Berkshires, Bob Hughes, a senior research fellow with the American Institute of Economic Research in Great Barrington said the slow pace of growth suggests the Federal Reserve will "remain on a slow and cautious path" for future interest rate increases.

The outlook is slow.


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