US Economy Sees Respite, But Economists Advise not to Keep Hopes Up Yet

The US economy has seen an exciting upsurge in the first quarter of the year. According to the Commerce Department, the gross domestic product (GDP) of the country increased by 2.5% from January to March of 2013. But the Americans are warned by economists not to be overly optimistic. They are saying that the positive trend may not persist in the coming months. The reason for the stern reminder to exercise caution is that the GDP increase did not quite reach forecast levels.

Despite the increase, some economists are saying that the 2.5% increase is a letdown since they were expecting an increase of at least 2.8%. But it is definitely an improvement on the 0.4% on record for the last quarter of 2012.

Increase in consumer spending

Consumer spending consists of 2/3 of the gross domestic product. It increased at a 3.2% annual pace. This rate is the fastest it had risen since the last quarter of 2010. This occurred despite lesser take-home pay. But according to analysts consumer spending increased at the behest of people’s savings. They spent more and saved less and were borrowing money in order to buy things. As a matter of fact, data shows that Americans saved 4.7% of their disposable income at the end of 2012. In the first quarter of 2013 savings are down to 2.6%.

According to the director of research and education for the American Institute for Economic Research Steve Cunningham, borrowing to spend and drawing down savings could not last forever.

What Americans are spending their money on

Economists are pointing out that people are spending more on services and not products. And by nature this could be a temporary surge. Americans are spending their money on utilities and housing which is now on a rebound after the slump post Hurricane Sandy. Heating bills also rose markedly due to the extreme March cold. Next on the list of consumer products are durable goods such as cars.

Another factor that has been identified as contributory to the boost is additional investments in software and equipment. This is due to the fact that shelves needed to be restocked for the first quarter of the year. Cunningham pointed out that this is also temporary.

Hopeful but on guard

American citizens are saying that they are optimistic, though they know that the economy is unlikely to return to the way it used to be. Economic recovery is improving the mood of many people. Business owners are also seeing an improvement in their retail sales.

Compared to other developed countries in Europe the United States is relatively in good standing. In the first quarter of this year, Britain’s economy increased by 0.3%. Last year, France did not see any improvement at all while Germany’s economy increased by 0.7%. On the other hand, Italy’s economy shrank by 2.4%.

Still, the overall verdict is that the US economy is recovering. Analysts are saying that the impact of the spending cuts was offset by Federal Reserve policies lowering interest rates and buying off debt.