US economy surprises
THE US economy expanded less than previously expected in the first quarter of this year as slower inventory building and cutbacks in government spending overshadowed a big gain.
THE US economy expanded less than previously expected in the first quarter of this year as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010.
Gross domestic product (GDP) rose at a 2.4% annualised rate, the commerce department said yesterday. The median forecast was for the 2.5% pace initially reported.
The boost to household wealth from rising home values and stock prices is allowing Americans to weather higher payroll taxes and sustain purchases, the biggest part of the economy. Resilient consumer spending, further housing market progress and job gains will help the expansion strengthen in the second half of the year as the fallout from federal budget cuts dissipates.
Another report yesterday showed more Americans filed claims for unemployment insurance payments last week as holiday closures kept five states from completing a full count. Applications for jobless benefits increased by 10,000 to 354,000 in the week ended May 25, the labour department said.
Consumer spending, which accounts for about 70% of the economy, increased at a revised 3.4% annualised rate in the first quarter. The gain, which added 2.4 percentage points to GDP, was more than the previous estimate of 3.2%.
Americans had increased their personal spending by drawing down savings, according to the report.
Consumer confidence climbed in May to the highest level in more than five years, and the S&P/Case-Shiller index of home values in 20 cities advanced in the year to March by the most in seven months, data showed this week.
Federal Reserve chairman Ben Bernanke warned last week that the economy remained hampered by high unemployment and government spending cuts, and tightening policy too quickly risked endangering the recovery.
A bigger decline in commercial construction than the government’s initial estimate also weighed on firstquarter growth, according to yesterday’s report.
Business investment on equipment and software grew faster and the trade deficit subtracted less than previously estimated.
Still, the stronger-than-projected gain in household purchases means the economy is better equipped to withstand $85bn in fiscal tightening and the lagged effect from a twopercentage-point increase in the payroll tax this year.
Government outlays, down for the 10th time in the past 11 quarters, fell more than previously estimated amid the winding down of military operations in Iraq and Afghanistan. Government spending will be limited by cuts in planned federal spending, or sequestration. Bloomberg