Economic growth slows to disappointing 2.2 percent, report says

The nation's economy grew at a slower than expected 2.2 percent in the first quarter of 2012, according to a report released Friday by the Commerce Department. 

The sluggish growth is a slow-down from the 3 percent growth seen in the fourth quarter of last year and suggests the economy is still not picking up speed after the financial crisis and recession. Projections had called for growth of about 2.7 percent.

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For the political world, the news is likely to worry the White House, which hopes the economy will grow and employment will rise ahead of November's election. Unemployment has fallen to 8.2 percent, but will be hard-pressed to fall further without stronger growth. 

A key part of presumptive GOP nominee Mitt Romney's campaign argument is that the recovery has been slowed by President Obama's policies. Obama and his campaign argue Romney would return the nation to policies that Democrats say launched the recession.

The White House sounded a positive note on Friday's numbers.

"While the continued expansion of the economy is encouraging, additional growth is needed to replace the jobs lost in the deep recession that began at the end of 2007," said Alan Krueger, chairman of the Council of Economic Advisers, in a blog post Friday morning.
 
Besides increases in consumer spending and auto production, Krueger pointed to a 19 percent increase in residential construction, the first time since 2005 that the sector has increased four quarters in a row, as "encouraging signs that the private sector is continuing to heal."

A bright side in the report was consumer spending, which picked up to its best pace in more than a year. But the boost to the economy from consumer spending was offset to a degree by cuts in government spending and businesses restraining their inventory build up, a running concern of economists during the quarter.

While the increase could spell trouble for Obama, the economy has been chugging along for 11 straight quarters. But the gains have fallen below expectations and levels seen during previous recoveries.

Federal Reserve Chairman Ben Bernanke was among economists who had said job growth was outperforming the economic expansion and would begin to slow through the first quarter, as it did in March.

The labor market added 120,000 jobs last month, after adding more than 200,000 jobs a month for the past several, while the unemployment rate fell to 8.2 percent, mainly because people gave up looking for work and weren't counted as jobless.

Mark Zandi, chief economist of of Moody’s Analytics, told The Hill this week that 8 percent might be the best the economy can produce by the November elections.

Still, economists expect the economy to grow at a 3 percent pace this year, below where policy makers want it, but potentially fast enough to spur hiring and fewer layoffs.

Even with stagnant wage growth and slowing hiring, consumer spending, 70 percent of economic activity and a key driver of growth, increased 2.9 percent, the highest level since the final three months of 201.

Spending increased on autos and computers.

“Today’s data showing that gross domestic product grew at a 2.2 percent rate in the first three months of 2012 confirms a long-running pattern – the U.S. economy is clearly expanding, but just as clearly it’s expanding at a rate that is too slow to put reliable, significant downward pressure on joblessness," said EPI economist Josh Bivens in a statement.

"The surest way to boost near-term growth to pull down the unemployment rate remains further fiscal support," he said.

"The fact that most of the policy debate is instead focused on just how fast this support will be ramped down in coming quarters is a sign of how detached this debate has become from economic reality."

The trade imbalance also has raised concerns as increases in imports weigh on growth.

In the first quarter, exports increased 5.4 percent up from 2.7 percent in the fourth but imports also picked up by 4.3 percent, compared with an increase of 3.7 percent in the final three months of 2011. 

— This story was updated at 10:27 a.m.