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Economic signals still flashing green despite first-quarter slump

Economic signals still flashing green despite first-quarter slump

The U.S. economy has a sound engine. It just keeps running into potholes. That’s the message economists expressed Friday after the government revised down its estimate of meager 0.2% growth at an annual rate in the first quarter to a 0.7% contraction. Even with an anticipated pickup in coming quarters, the downgrade likely means the economy will grow 2% to 2.5% in 2015, in line with the modest six-year-old recovery so far and short of the breakout 3% or so economists expected. A first-quarter contraction in 2014 similarly crimped growth for the entire year.AP RETAIL SALES F USA NY

Yet many economists attribute the disappointing showing to a combination of temporary factors and a flawed tally of the economy’s output by the government. And with the labor market chugging along nicely, they wonder, why fret over another middling advance in the nation’s gross domestic product? “Get out the towels for all those crocodile tears that I am shedding,” Joel Naroff of Naroff Economic Advisors wrote in a note to clients.

The economy’s temporary headwinds include nasty weather that delayed activity early this year and a surge in imports as backlogs were cleared from a now-settled labor dispute at West Coast ports. Those episodes are history. The effects of a strong dollar that’s hurting U.S. exports and low oil prices that are shutting down drilling projects are likely to last longer but will be far less prominent by the second half of the year, economists say.

But even the first-quarter downturn reported by the government may not be as dire as it appears. Recent reports by the San Francisco Federal Reserve and others conclude that the Commerce Department for several years has not adequately accounted for bad weather in its seasonal adjustments of first-quarter GDP. Commerce reported Friday that another measure of the economy’s performance that should mirror GDP – gross domestic income – increased a respectable 1.4% last quarter. Also, job growth has averaged a solid 194,000 a month so far this year despite a weak, weather-tainted performance in March.

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