Q1 grows at slower pace

THE US economy grew at a slower pace than previously estimated in the first quarter as businesses investment slackened, while hard-hit state and local governments curbed spending at the steepest rate since 1981, a government report showed yesterday.

Gross domestic product expanded at a 3 per cent annual rate, the Commerce Department said, instead of the 3.2 per cent pace it reported last month.

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within US borders, growing at a 3.4 per cent rate in the January-March period. The economy expanded at a 5.6 per cent pace in the fourth quarter and has now grown for three straight quarters.

Economists are monitoring the US recovery closely to see how well the economy can endure the debt troubles that threaten to slow Europe's growth. The above-trend first-quarter US growth suggests a solid base of support. Output in the first three months of the year was revised down as business spending rose at only a 3.1 per cent rate instead of the 4.1 per cent initially reported last month.

Spending grew at a 5.3 per cent pace in the fourth quarter. Business spending on software and equipment increased at a 12.7 per cent rather than the 13.4 per cent rate reported last month. State and local government spending contracted at a 3.9 per cent rate, the largest decline since the second quarter of 1981.

However, consumer spending, which is key to the economy's recovery, held up well. Consumer spending increased at a 3.5 per cent rate, rather than the 3.6 per cent rate reported last month. Although it was revised down slightly, it was still more than double the 1.6 per cent pace in the fourth quarter and the largest advance since the first quarter of 2007.

Recovery from the longest and deepest recession since the Great Depression had so far been largely driven by the manufacturing sector as businesses replenished their warehouses to meet strengthening demand. Consumers, however, are now participating as the labour market begins to firm.

The GDP report also showed after tax corporate profits rose 2.1 per cent in the first quarter after increasing 6.5 per cent in the final three months of 2009. -- Reuters

Source: Business Times, 28 May 2010