U.S. Growth Slows to 2.2%, Report Says

The economic recovery slowed more than expected early this year, raising fears of a spring slowdown for the third year in a row and giving Republicans a fresh opportunity to criticize President Obama’s policies. The United States gross domestic product grew at an annual rate of 2.2% in the first quarter, down from 3% at end of last year, according to a preliminary report released Friday. It was the first deceleration in a year, but it was not nearly as severe as other setbacks in the last couple of years. Mitt Romney, the presumptive Republican presidential nominee, has been hammering on economic issues all week, insisting that the president has held back the recovery and intends to do further damage. But White House focused on the bright spots in the report, like solid growth in consumer spending and a surge in residential building. “When you look at the report in the totality, I think it shows that the private sector is continuing to heal from financial crisis,” said Alan Krueger, chairman of the president’s Council of Economic Advisers. Congress should pass elements of the president’s jobs plan, he said, like one that would subsidize the employment of teachers and first responders to emergencies. “We would like to see the pace of economic growth pick up, and those additional measures which the president proposed are well targeted to the areas of weakness in the economy now”. Representative Kevin Brady, a Republican from Texas and vice chairman of the Joint Economic Committee, called the numbers “beyond disappointing”. “The damage being done by the Obama administration’s policies have produced a weak recovery”. The American economy has been growing since the second half of 2009, coming close to a 4% growth rate in early 2010 before faltering. Growth slowed nearly to a halt in the first quarter of 2011 but accelerated throughout the rest of the year. The first-quarter growth was weaker than expected. United States stock markets largely shrugged it off, however, perhaps in part because the country is growing while many economies are contracting. Economists initially predicted a much weaker showing in the latest quarter, partly because of a large accumulation of inventories in the fall and winter that needed to be worked off. But in the last few weeks, expectations rose on strong jobs reports and rising consumer confidence. Consumer spending did turn out to be the major strength early this year, growing 2.9% compared with 2.1% in the last quarter of 2011. Business investment, which had been a bright spot, declined in the most recent quarter (…..)

Link: http://www.nytimes.com/2012/04/28/business/economy/us-economic-growth-slows-to-2-2-rate-report-says.html?_r=1

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Consultor Internacional

2 Responses to U.S. Growth Slows to 2.22, Report Says

  1. Professor Uziel Nogueira says: The million dollar question is WHEN the US economy will be creating enough jobs to bring down the 10% plus unemployment. Mainstream economists — including the Nobel Prizes — are divided into followers of Keynes and followers of Milton Friedman. The former (Paul Krugman) advocates loose monetary policy and high government expending. The latter defends tight monetary policy and budget deficit reduction. The magic of the market will ignite growth and create enough jobs bring down unemployment rate to historical levels. The economic model is just fine. Foreign economists — with experience in financial crisis, like myself — have a different take. The US economy is experiencing a similar Japanese-style event of the 80s caused by a near-financial meltdown. In this complex macroeconomic situation, the debt hangover off set monetary policy and constraint fiscal policy. After reducing interest rates to zero, the FED is left naked, without any tools to affect monetary policy. Public spending is restrained by the size of the public debt close to 80%/GDP. For each dollar borrowed by the Treasury, 50 cents comes from foreigners. Public debt dynamic is unsustainable. In summary, the new normal of the US economy is low economic growth and anemic job creation. Robust growth and strong job creation can only be possible when the debt hangover (public and private) is brought down to sustainable levels. The era of high growth and easy credit is over.

    http://www.nytimes.com/2012/04/28/business/economy/us-economic-growth-slows-to-2-2-rate-report-says.html?_r=1

  2. Don Reid: I will paraphrase an old joke. Two men are walking in the jungle when they come upon a tiger. The first man immediately reaches into his backpack;pulls out a pair of running shoes and puts them on. The other man exclaims, “You can’t outrun a tiger!” The first man replies, “I don’t have to. I just have to outrun you.” The US is currently borrowing 40% (not 50%) of each federal dollar it spends. This must stop although everyone recognizes it cannot stop instantaneously. Furthermore, we spend about $600B per year on interest payments on existing debt. This must be reduced, only possible after the deficit spending stops. To do this, the US doesn’t have to solve all its problems – it just has to solve more than its competitors (tiger story). The US has to be competitive at a world level. The most immediate thing that can be done is to reduce labor costs. This means a combination of lower wages and fewer workers. It has also spurred more outsourcing to other countries – a mixed blessing. This creates social problems that are untenable, and are exacerbated by illegal immigration and the cry for more H1B visas. There will be a demand for a political solution, but only a rise in productivity will really help in the long term. This requires better education and new technology. Both of these take time and technology is further complicated by lax IP enforcement around the world. Applying solid pedagogical techniques, the education problems could be solved in 4 – 6 years if we massively overhaul the current education system. This is a major structural problem and the top priority. The current notion of just spending more money on the existing system is not just a waste, but delays the day when a better system is implemented. This is the biggest roadblock the nation has to recovery and why China and Germany are such formidable competitors. Without a reformulation of education, I would set no time limit on how long we could languish in the doldrums. The longer deficit spending is allowed to continue, the more likely the country will default or inflate its financial problems away. Our problems are not unsolvable, but cannot be solved by government. This is the greatest danger from a Democrat resurgence in the coming election.

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