Economy shows anemic growth last quarter


Zandi estimates that the temporary factors that dragged down the economy in the last quarter are diminishing and that growth is maintaining a 2 percent pace, roughly what it has been since the recovery began almost four years ago.

That is probably the level of growth for the first three months of this year, too, he said. 

"This is just enough growth to push unemployment very slowly lower, but means the economy is vulnerable to anything that might go wrong," he said. 

"And given the brinksmanship in Washington and threats from overseas, there is plenty that still can go wrong." 

He is concerned that the economy will remain soft through the spring and summer "as it digests the tax increases and government spending cuts that the full sequester will only exacerbate." 

"I’m hopeful the recovery will remain intact and gain traction later this year as the housing market moves into full swing, but it would be desirable if policymakers scaled back the sequester for this year and phase in the spending cuts over the rest of the budget horizon," he said. 

The growth rate is the worst showing in about two years and much slower than the 3.1 percent in the third quarter of last year, and a reflection of a weak economic recovery amid the implementation of a package of $85 billion in across-the-board spending cuts that many argue will stymie any progress.

Those cuts are set to go into effect on Friday. 

President Obama and many of his Cabinet secretaries have argued that the looming sequester will affect essential services nationwide. 

The Senate will vote on two bills — one from Democrats and the other from Republicans — on Thursday that would replace the spending cuts, but they are expected to fail. 

Obama will meet with congressional leaders at the White House on Friday to see if there is a way to stop the cuts.  

Large slowdowns in federal government and defense spending weighed on the figure and were only slightly offset by a pickup in consumer spending and business investment, as well as a lower trade deficit than expected. 

Consumer spending and an improving housing market are expected to contribute to stronger growth in this quarter and throughout the year. 

Still, the housing market has its own challenges. While demand has picked up along with prices, there is limited supply of homes for sale in many areas, holding back a stronger recovery. 

In response, home builders are asking banks to loosen up lending for construction and home purchases to spur a faster expansion.

This story was updated at 10:35 a.m.