The economy grew at a 1.9% annualized pace in the first quarter of 2011, resulting in mediocre GDP growth of 2.3% for the trailing four quarters, according to the final estimate released today by the Department of Commerce. With no surprises in today’s GDP revision, attention is firmly focused on results for the second quarter and beyond.
Recent data suggests that the economy has slowed further since the first quarter, and some leading indicators are pointing to softness in the latter half of the year as well. Consumer confidence remains constrained. The recent deterioration in the jobs market has been disappointing, and conditions in the housing market continue to indicate that a rapid recovery there is also unlikely.
Geopolitical tensions abroad and rising food and gasoline costs have also had a negative impact on consumer psyche, though the decline in oil prices has provided some relief in recent weeks. The ultimate impact of the U.S. government’s announcement yesterday to release 30 million barrels of oil from the nation’s emergency oil stockpile remains to be seen, but could also provide some marginal easing in price pressures.
Earlier this week, Fed Chairman Ben Bernanke reiterated the Fed’s view that the slowdown is likely temporary and not a persistent problem, with the pace of economic recovery to pick up over the coming quarters. Although the Fed’s revised expectation is for slower than previously projected growth over the next few years, it is still more optimistic than many private sector economists.
Our view is that the economy is likely to face further headwinds in the quarters ahead and may struggle to achieve results on par with the Fed’s projections. The slowdown in the pace of economic growth and the potential for further weakness in the labor and housing markets remain concerning as we head into the latter half of the year. A further easing in inflationary pressures, if it occurs, could ease some of the fear that has seeped back into the market and encourage an uptick in consumer spending.
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