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Why a grim US economic picture is brightening

 After slipping in the first quarter, partly because of weather-related disruptions, factories are making more machinery, cars, furniture, and computers.

Jackie Ricciardi for The Boston Globe

After slipping in the first quarter, partly because of weather-related disruptions, factories are making more machinery, cars, furniture, and computers.

WASHINGTON — When the government updates its estimate on Wednesday of how the US economy fared last quarter, the number is pretty sure to be ugly. Horrible even.

The economy likely shrank at an annual rate of nearly 2 percent in the January-March quarter, economists estimate. That would be its bleakest performance since early 2009 in the depths of the Great Recession.

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So why aren’t economists, businesses, or investors likely to panic?

Because most agree that the economy last quarter was depressed by temporary factors — particularly the blast of Arctic chill and snow that shuttered factories, disrupted shipping, and kept Americans away from shopping malls and auto dealerships.

Since then, the picture has brightened. Solid hiring, growth in manufacturing ,and surging auto sales have lifted the economy at a steady if still-unspectacular pace. That said, sluggish pay growth and a stumbling housing rebound have restrained the expansion. But the economy’s recovery continues.

No signs of panic

Wednesday’s report will be the government’s third and final estimate of the economy’s first-quarter performance. Here are five reasons economists are looking past last quarter’s dismal showing and five reasons the economy still isn’t back to full health.

 Hiring is robust: If the economy really was tumbling back into recession, you’d see businesses laying off workers — or at least clamping down on hiring. That isn’t happening. Employers are adding jobs at the fastest pace in 15 years. That’s a pretty clear sign that they see last quarter’s troubles as temporary. And layoffs are down. The number of people seeking unemployment benefits, a proxy for layoffs, has fallen 10 percent since the first week of January.

 Winter blast: With summer in full swing, it might be hard to remember the brutal winter. But the cold damaged the economy last quarter. Spending on autos, furniture, clothes, and other goods rose at the slowest pace in nearly three years. With snow blanketing building sites, home construction plummeted in January. Alexander estimates that winter weather slowed economic activity by about 1.5 percentage points on an annual basis.

 Clearing out stockpiles: Another drag on growth last quarter was probably also temporary: Companies sharply cut back on their restocking of goods. That wasn’t unexpected. It occurred after companies had aggressively ramped up restocking in the second half of last year. The slowdown in the January-March quarter reduced annual growth by 1.6 percentage points, the government said. With growth strengthening, businesses are restocking at a faster rate again.

 Health care complications: Last quarter’s economy will look bleak in part because the government needs to correct a mistaken assumption. It previously figured that health spending soared last quarter after many Americans obtained insurance on the Obama administration’s health care exchanges. But when data were released this month, there was no sign of such additional spending. As a result, consumer spending probably grew at a 2.3 percent annual rate last quarter, not the 3.1 percent previously estimated, according to JPMorgan Chase .

 Manufacturing gains: After slipping in the first quarter, partly because of weather-related disruptions, factories are making more machinery, cars, furniture, and computers. They’re hiring and giving workers more overtime, which translates into bigger paychecks.

More work to do

Most analysts think the economy is growing at a 3.5 percent annual rate in the current quarter and will expand at a 3 percent rate for the rest of the year. And despite all the positives, it’s worth keeping in mind that a truly robust economy wouldn’t be thrown off so much by severe weather. Here are signs that the economy still hasn’t achieved full health:

 Housing slowdown: At the top of most economists’ worry list is housing. Rising home prices and higher mortgage rates have put homes out of reach for many would-be buyers. Even for people willing and able to buy, there aren’t enough homes for sale. All of which has slowed purchases, which fell 5 percent in May compared with 12 months earlier. Yet there are signs that the housing market is stabilizing. Price gains are slowing. And mortgage rates have fallen.

 Higher gas prices: Middle East turmoil, particularly in Iraq, could cause oil and gas prices to spike. That would leave consumers with less money to spend on other goods and could limit growth. Crude oil prices hit a nine-month high Thursday.

 Stagnant wages: While layoffs have fallen back to pre-recession levels and hiring is steady, the economy still isn’t delivering what most Americans probably want most: A decent raise. Average hourly pay, adjusted for inflation, slipped 0.1 percent in May compared with a year earlier.

 Long-term unemployment: Despite the pickup in hiring, 3.4 million Americans have been out of work for six months or longer — more than double the pre-recession figure. Some may find jobs as the economy recovers. Others will give up searching and return to school, retire early or care for relatives.

 Unemployment rate not as good as it looks: The unemployment rate has fallen to 6.3 percent, a five-year low, from 10 percent in October 2009. But much of the drop has occurred because many people have given up on their job searches. The percentage of Americans working or looking for work has reached a 35-year low.

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