The economy in the U.S. grew less than previously calculated in the first quarter, reflecting less spending on services by consumers who were trying to make ends meet after taxes rose.
Gross domestic product expanded at a revised 1.8% annualized rate from January through March, down from a prior estimate of 2.4%, figures from the Commerce Department showed today in Washington. Household purchases, which account for about 70% of the economy, were revised to a 2.6% advance compared with the 3.4% gain estimated last month.
Households cut back on travel, legal services and personal care expenditures and also curbed spending on health care as the two percentage-point increase in the payroll tax caused incomes to drop by the most in more than four years. A housing rebound and improving job market will probably help revive purchases in the second half of the year, one reason economists project the economy can withstand the automatic government budget cuts.
“We just got off to a slower start than expected,” said Maury Harris, the New York-based chief economist for UBS Securities LLC, who projected a 2.1% advance in GDP. “The second half will be better,” he said, because banks are making it easier to borrow.
Stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, as China’s cash crunch eased. The S&P 500 climbed 0.7% to 1,599.81 at 10:15 a.m. in New York. The yield on the benchmark 10-year note fell to 2.53% from 2.61% late yesterday.
The median forecast of 82 economists surveyed by Bloomberg called for a 2.4% rise in GDP, the value of all goods and services produced, the same as the Commerce Department previously estimated.
Forecasts ranged from 1.6% to 2.6%. The government’s GDP estimate is the third and final for the quarter. The economy grew at a 0.4% annualized pace in the last three months of 2012.
Last quarter’s increase in consumer purchases was still the strongest in two years, and followed a 1.8% gain in the fourth quarter of 2012.
The revisions showed household spending in the category of other services, which includes tourism, legal help and personal care items such as hair cuts, dropped in the first quarter from the previous three months. Outlays on health care services grew at a slower pace than previously projected.