Monday 25 June 2018

US growth data sparks fears of more struggle

Washington, April 27, 2013

US economic growth regained speed in the first quarter, but not as much as expected, heightening fears an already weakening economy could struggle to cope with deep government spending cuts and higher taxes.

Gross domestic product expanded at a 2.5 per cent annual rate, the Commerce Department said yesterday, after growth nearly stalled at 0.4 per cent in the fourth quarter. Economists had expected a 3 per cent growth pace.

Part of the pick-up in activity reflected farmers' filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5 per cent.

Still, most areas of the economy contributed to growth, with the exception of government, the trade sector and investment by businesses in offices and other commercial buildings.

While consumer spending increased solidly, it came at the expense of saving, which does not bode well for future growth.

A separate report showed worries about finances sapped consumer morale in April. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment fell to 76.4 last month from 78.6 in March.

The GDP report offers ammunition for the Federal Reserve to maintain its monetary stimulus. The US central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85 billion a month.

"They are going to mark down their economic assessment. The second quarter is tracking closer to 1 per cent," said Jacob Oubina, an economist at RBC Capital Markets in New York.

Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year, and the factory sector appears to have slowed further in April.

Many forecasters expect the economy's softness to persist into the third quarter until signs of a convincing revival emerge.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 3.2 per cent pace - the fastest since the fourth quarter of 2010. It grew at a 1.8 per cent rate in the fourth quarter of last year.

The increase in spending came despite the return of a 2 per cent payroll tax and higher petrol prices. Households, however, had to cut back on saving as incomes dropped at a 5.3 per cent rate, the steepest descent since late 2009.

The saving rate - the percentage of disposable income households are socking away - fell to 2.6 per cent, the lowest since the fourth quarter of 2007, from 4.7 per cent in the final three months of last year.

Despite the spike in petrol prices, inflation pressures were benign. Inflation rose at a 0.9 per cent rate, the smallest increase since the second quarter of 2012 and a sharp slowdown from the 1.6 per cent pace logged in the fourth quarter.

A core measure that strips out food and energy costs rose at a 1.2 per cent rate.

The lack of inflation should come as welcome relief for American households, but it could cause some nervousness at the US central bank, which may see it as a symptom of the economy's weakness.

The Fed aims to keep inflation close to 2 per cent.

Government spending fell at a 4.1 per cent pace, with declines at both the federal and the state and local levels. Government spending has declined for 10 of the last 11 quarters.-Reuters

Tags: Jobs | economy | US | growth |


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