Growth likely dipped in winter, but 2012 brightens

The U.S. economy probably grew more slowly at the start of the year than at the end of last year. But it's expected to grow faster for all of 2012 than in 2011.

The government on Friday will make its first estimate of growth for the January-March quarter. The consensus forecast is that gross domestic product — the output of all goods and services, from cars to electricity to manicures — grew at a 2.5 percent annual rate, according to a survey of economists by FactSet.

That would be slower than the 3 percent GDP growth in the final three months of 2011. Much of the growth in the October-December quarter was due to businesses aggressively restocking their supplies. The pace of restocking is expected to have declined last quarter.

Trade probably also slowed growth last quarter. U.S. manufacturers are finding it harder to sell products overseas because of Europe's debt crisis and weaker growth in Asia.

On the other hand, the January-March quarter likely benefited from the milder-than-normal winter. It probably led consumers and businesses to step up spending earlier in the year than they typically do. Consumer spending, in particular, is critical because it accounts for about 70 percent of economic activity.

Many economists predict growth will strengthen in the second half of this year because they think hiring will continue to improve. Job growth has helped drive the unemployment rate to 8.2 percent in March from 9.1 percent in August and given households more money to spend.

"I am looking for steady but not spectacular growth this year," said Joel Naroff, chief economist at Naroff Economic Advisors. Naroff thinks the economy will grow 3 percent for all of 2012.

That would be nearly double the anemic 1.7 percent growth in 2011. The economy expanded 3 percent in 2010, the first full year of the recovery after the Great Recession officially ended in June 2009. In 2009, economic output had shrunk 3.5 percent.

Last year began with signs of healthier growth. But then the economy endured a series of shocks. Gasoline prices surged after political unrest triggered by the Arab Spring. The earthquake and tsunami in Japan slowed the flow of supplies to U.S. auto plants and other factories. And the European debt crisis and a standoff over raising the federal borrowing limit unsettled investors.

Gasoline prices have risen again this year. But the effect on consumer spending so far has been less. In part, that's because a warm winter meant families didn't have to spend as much to heat their homes.

Also, consumers this year have reduced their debt loads. Housing is inching back. State and local governments aren't cutting as much. Banks are lending more. And the threat from Europe's debt crisis has eased somewhat.

"Last year, high gas prices did a lot of damage," said Mark Zandi, chief economist at Moody's Analytics. "But consumers seem to be weathering the impact of higher prices much better this year."

Zandi said one factor that might hold back growth this year is a reluctance by some businesses to expand and hire until uncertainty over taxes and government spending is resolved.

That uncertainty could last most of the year. Congress and the Obama administration aren't expected to resolve their differences until a lame-duck session of Congress begins after the November elections.

The Bush-era tax cuts and a reduction in Social Security taxes will expire at year's end. And in January, across-the-board spending cuts would take effect unless Congress achieves a budget agreement by then.

"There is a lot of uncertainty with regard to future tax policy and future spending policy," Zandi said. "That is causing businesses to be cautious."

The government makes three estimates of the GDP for each quarter. Each revision is based on more complete economic data.