US economy likely rebounded in first quarter

Published on NewsOK Modified: April 25, 2013 at 11:02 pm •  Published: April 25, 2013
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Ben Herzon, an economist at Macroeconomics Advisers, said the tax increases could shave roughly 1 percentage point from growth this year. He also expects the government spending cuts to reduce growth by about 0.6 percentage point.

One area where consumers are feeling some relief is at the gas pump. The national average price for a gallon of gas has fallen by 28 cents since Feb. 27, to $3.51. Analysts say prices could fall 20 cents more over the next two months.

Cheaper gas helps the economy because it makes goods less expensive to transport and gives consumers more money to spend on other things. Over the course of a year, a decline of 10 cents a gallon translates to roughly $13 billion in savings at the pump.

Herzon said cheaper gas is helping blunt some of the effect of the Social Security tax increase.

"If not for the recent decline in gas prices, the outlook for the economy would be even worse," Herzon said.

Another bright spot for the economy this year is the housing recovery. Residential construction is expected to add to growth in 2013 for a second straight year.

In March, U.S. builders started work on a seasonally adjusted annual rate of more than 1 million homes. It was the first time it had crossed that threshold in nearly five years.

Sales of newly built and previously occupied homes are up from last year. And prices are rising, a trend that makes homeowners feel wealthier and more likely to spend.

Some of the bounce in first-quarter growth is expected to come from a rebound in defense spending and restocking. Both areas were weak in the fourth quarter and had combined to shave 2.8 percentage points from growth.

But defense spending is likely to languish later this year because of the government cuts. And business stockpiling is expected to weaken again in the April-June quarter, as companies react to slower consumer spending.

Despite the decline, economists say they think consumers will help bolster growth later this year.

Brian Bethune, an economics professor at Gordon College in Massachusetts, said stock market gains and higher home prices are making Americans feel more confident in the economy. And cheaper gas should also help support consumer spending.

"I don't think the drop in gas prices will fully offset the payroll tax increase, but it will buffer it considerably," Bethune said.



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