With Stronger Consumer Spending, U.S. Economy Is Poised for 3% Growth
NEW YORK (TheStreet) -- The U.S. economy is set to take off.
Scarred by the financial crisis but on their feet again, consumers will lead the economy to growth in the range of 3% through the end of 2015.
The Commerce Department reported in the first quarter the gross domestic product decreased at a 2.9% annual rate but that the dismal showing was from an unlikely confluence of factors not likely to reoccur.
Consumer spending, which accounts for the lion's share of domestic demand, grew only 1%, which is about half the rate established during the previous three years. A bitterly cold winter was important but so was simple exhaustion from holiday spending.
In the fourth quarter, household spending increased 3.3%, and in the first quarter, many consumers rebuilt their savings and curbed use of their credit cards. The cold weather just made that easier.
Consumers are now in a much stronger position than earlier in the economic recovery. Housing values have improved substantially, and most households have managed to significantly deleverage.
For the second and third quarters, consumer spending growth should average more than 3%, and average close to that level through the end of 2015.
Business investment dived 11.7% in first quarter, which simply can't be attributed to cold weather.
According to the Federal Reserve, industrial capacity utilization was 79.1% in May, still below the average for the last two decades. However, structural changes and advances in technologies and product designs require new investments in physical assets and software to bring existing plants up to date to accommodate more robust consumer spending.
Business outlays will turn around sharply in the second and third quarters. Core durable-goods orders -- those less the volatile defense and aircraft sectors -- look solid, and indicate general business confidence.