Economic growth slows sharply; new jobless claims rise

Two new snapshots of the economy — one showing a sharp slowdown in first-quarter economic output and the other a surge in weekly unemployment claims — underscored the fragility of the recovery, its vulnerability to global shocks and the long road still ahead for millions of American workers.

Many analysts shrugged off the report that gross domestic product grew just 1.8% in the first part of the year — down from 3.1% in the fourth quarter last year.

Economists said the slowdown was caused mostly by temporary factors such as the harsh winter weather and a surge in oil and food prices, which took a bite out of consumer spending and the nation’s trade.

Officials at the Federal Reserve as well as many private forecasters expect GDP growth to bounce back to 3% or higher in the rest of the year.


But that depends partly on an easing of global economic and political problems, particularly the unrest in the Middle East and North Africa that is behind the spike in petroleum prices. Such a reduction of tensions is far from certain. And new shocks are also possible, given the continuing upheavals in the region and elsewhere.

The latest GDP figures were close to analysts’ expectations, but the jobless claims report was an unwelcome surprise. With hiring picking up in the last two months, experts predicted a drop in new filings for jobless benefits.

Instead claims rose for the second time in three weeks, to the highest level since late January.

These figures are volatile from week to week, and some seasonal and temporary factors may have played a role in the latest jump, including the Easter holiday and the disaster in Japan, which disrupted delivery of parts in the auto and the electronics industries.

Still, the report provided another discouraging sign for an economy that is struggling with nearly 9% unemployment nearly two years after the official end of the recession.

Even before Thursday’s report, Federal Reserve Chairman Ben S. Bernanke and other economists weren’t particularly encouraging that the jobless rate would come down quickly. Bernanke said Wednesday that high unemployment and the slow pace of the jobs recovery were key factors behind the Fed’s continued easy-credit policies.

“On both economic growth and jobs, we’re seeing some retrenchment,” said Sung Won Sohn, an economist at Cal State Channel Islands. As for energy prices, he added, “It could get worse in the second quarter.”

The damaging effects of higher oil and commodity prices were evident in the GDP report from the Commerce Department. Personal consumer spending, which had risen an impressive 4% in the fourth quarter, slid back down 2.7% in the first three months this year.

“We’re already beginning to see a slowdown in traffic counts in highways and freeways,” said Sohn.

That includes people such as Angela Waldron, a homemaker in central Michigan. She said she wasn’t taking as many trips to stores and other places because she was cutting back on driving. And she’s paying more for fresh produce.

“Prices have gone up,” the former schoolteacher said.

Behind higher oil and food prices, inflation has picked up in recent months, cutting into consumers’ purchasing power. It’s also hurting businesses.

Champ Land, who owns Troutman Chair Co. in North Carolina, said it costs him $600 more for each truck delivery of wood from West Virginia than it did last year.

He said he’s been able to pass on some of the cost to his customers, and his sales were up 15% in the first quarter compared with a year earlier. But he remains hesitant to add to his payroll.

“That’s the last thing I want to do” because it’s costly, he said, adding that he was also concerned states will states would raise unemployment insurance taxes on firms to cover the debts they owe for paying jobless claims.

He said he may instead buy equipment that might help him boost productivity to meet rising sales.

The GDP report Thursday showed that businesses continued to spend robustly for new equipment and software, with those expenditures jumping nearly 12% in the first quarter from the previous quarter.

One cause for optimism in the coming quarters is U.S. exports. With the dollar having fallen in value, companies are expected to boost their shipments to overseas markets.

“It’s going to make domestically produced goods and services more attractive than imports,” said Ben Herzon, a senior economist at Macroeconomic Advisers, a St. Louis forecasting firm.

Herzon said he also expects consumer spending overall to increase over the rest of this year in what he called “a release of pent-up demand,” fueled by stronger stock prices, a stabilizing housing market and improving lending conditions.

“We’re in the heart of the recovery,” he said. “We still have a lot of unused resources. I think it’s reasonable to expect above-trend growth for the next couple of years.”