US Economy Likely Rebounded

WASHINGTON (AP) -- After a terrible winter, the economy is improving, with a solid rebound in the spring expected to be followed by stronger growth in the second half of the year.

That's the view of many economists who think a steadily improving job market will give households more income to spend and boost consumer spending, which drives about 70 percent of the economy.

On Thursday, the government will issue its first of three estimates of economic growth in the April-June quarter, as measured by the gross domestic product. Economists have forecast that GDP grew at a solid 2.7 percent annual rate, according to a survey of economists by data firm FactSet.

The signs of strengthening job gains and expectations of faster growth ahead help explain why the Federal Reserve appears on track to start raising interest rates this year. On Wednesday, the Fed ended its latest policy meeting by keeping a key rate at a record low near zero, where it's remained since 2008. The Fed said it still needs to see further gains in the job market and feel reasonably confident that low inflation will move back to its 2 percent target rate.

Many economists think the first rate hike will occur in September. Others think it may take the Fed until the end of the year to conclude that the time is right to increase rates for the first time in nearly a decade.

In addition to estimating GDP growth in the April-June quarter, the government on Thursday will release its annual revision to the GDP figures. The revision is expected to address doubts about the process the government has been using to make seasonal adjustments to its GDP estimates. In recent years, in particular, the government appears to have underestimated growth in the January-March quarter.

In advance of the revisions, the government estimates that the economy shrank in the first quarter at an annual rate of 0.2 percent.

Mark Zandi, chief economist at Moody's Analytics, is forecasting that growth will accelerate further to around a 3 percent annual rate in the second half of this year. That would be enough to boost growth to 2.5 percent for all of 2015. For 2016, Zandi is forecasting growth of 3.1 percent, which would be the best since 2005.

"We have a strong economy," Zandi said. "We are going to produce a lot of jobs over the next year."

The unemployment rate has reached a seven-year low of 5.3 percent, and Zandi predicts it will fall further in coming months as stronger economic growth spurs more job gains.

He said it's this prospect that will spur the Fed to begin raising rates. Because it takes time for the Fed's rate policies to affect the economy, it needs to begin raising rates before inflation emerges as a problem, Zandi and other economists have said.

(KA)