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US growth falls to 2.2pc in quarter

Washington, April 28, 2012

US economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a slower pace, but stronger demand for cars softened the blow.

Gross domestic product expanded at a 2.2 per cent annual rate, the Commerce Department said yesterday in its advance estimate, moderating from the fourth quarter's 3 per cent rate.

While that was below economists' expectations for a 2.5 per cent pace, a surge in consumer spending took some of the sting from the report and growth was still stronger than analysts' predictions early in the quarter for an expansion below 1.5 per cent.

'There's nothing catastrophic happening, this is just slow growth and this underscores that the economy is on sound footing but nothing more,' said Steven Baffico, the chief executive at Four Wood Capital Partners in New York.

Futures for the broad-based S&P stock index pared gains after the GDP report, while US Treasuries prices turned positive. The dollar extended losses against the yen and fell against the euro.

Although the details were mixed, the GDP report offered a somewhat better picture compared with the fourth quarter, when inventory building accounted for nearly two-thirds of the economy's growth. In the first quarter, demand from consumers took up the slack.

Consumer spending which accounts for about 70 per cent of US economic activity, increased at a 2.9 per cent rate - the fastest pace since the fourth quarter of 2010. That compared with a 2.1 per cent rise in the fourth quarter.

There were other signs of underlying strength, with even home construction rising at its fastest pace since the second quarter of 2010, thanks to the unusually warm winter.

But business spending fell for the first time since the fourth quarter of 2009, with investment in equipment and software rising at its slowest pace since the recession ended.

'It is disappointing that business investment fell, but that could prove temporary,' said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania.

Another drop in government defence spending, which confounded expectations for a strong rebound, also undermined growth.

The report will probably not change views on monetary policy. Federal Reserve chairman Ben Bernanke on Wednesday expressed comfort with the current stance of Fed policy, but held out the prospect of more bond buying if the economy deteriorated.

The pace of growth remains too soft to offer comfort to President Barack Obama seeking a second term in office and not enough to significantly bring down the unemployment rate.




Tags: US | investment | business | Economic Growth |

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