WASHINGTON (AP) — U.S. business economists have sharply cut their growth forecasts for the April-June quarter and 2014, though they remain optimistic that the economy will rebound from a dismal first quarter.
The average forecast for growth in the second quarter has fallen to 3 percent, according to a survey released Friday by the National Association for Business Economics. That's down from 3.5 percent in a June survey. Growth in 2014 as a whole will be just 1.6 percent, they project, sharply below a previous forecast of 2.5 percent. If accurate, this year's growth would be the weakest since the Great Recession.
The lower 2014 forecast largely reflects the impact of a sharp contraction in the first quarter. The economy shrank 2.9 percent at an annual rate, the biggest drop in five years. That decline will weigh heavily on the economy this year, even if growth resumes and stays at 3 percent or above, as most economists expect.
The economists reduced their second-quarter forecast largely because they expect consumers spent at a much more modest pace. They now expect spending will grow just 2.3 percent at an annual rate in the second quarter, down from a 2.9 percent estimate in June. Spending rose just 1 percent in the first quarter, the smallest increase in four years, a sign consumers are still reluctant to spend freely.
Many retail chains are feeling the pain. The Container Store said Tuesday that sales at stores open for at least a year slipped 0.8 percent in the first quarter.
"We are experiencing a retail 'funk'," Kip Tindell, chief executive of The Container Store, said Tuesday. "While consumers are buying homes and automobiles and even high ticket furniture, most segments of retail are, like us, seeing more challenging sales than we had hoped early in 2014."
Family Dollar Stores and clothing retailer the Gap also reported lower sales this week.
Another factor weighed heavily on the first quarter: A big drop in exports widened the nation's trade deficit and accounted for about half the contraction. Exports picked up in May and trade is unlikely to be as big a drag in the second quarter. But the NABE survey found that economists expect exports will now rise just 2.5 percent this year, down from June's estimate of 3 percent. The weaker figures reflect sluggish economies in Europe and slower growth in China.