US economy grows far less than thought

The US economy has been growing far less than previously expected and was almost flat in the first quarter of this year, new government data has shown.

The Commerce Department released the report alongside its first estimate for GDP growth in the second quarter of 2011, showing a worse-than-expected gain of 1.3 per cent.

It also cut first-quarter growth to a virtually flat 0.4 per cent, from a previous level of 1.9 per cent, while it said growth in the fourth quarter was 2.3 per cent rather than the previously reported 3.1 per cent.

Capital Economics economist David Madani said the second quarter figure was worse than expected but the downward revision to first-quarter growth was “really eye-catching”.

“This downward revision was largely due to a smaller contribution from inventories and net exports. Both these factors supported growth in the second quarter,” he said.

“Stripping out these most volatile components, growth was just 0.4 per cent in the first quarter and 0.5 per cent in the second. In the first half of the year, underlying activity has pretty much stalled.”

Alongside the updated figures, the department issued a report detailing growth throughout the past three years, which showed that the US experienced a far deeper recession and sharper contraction than previously thought.

The three years from 2007 to 2010 saw the US move into recession earlier, fall more and take longer to recover than believed.

Economic output declined by a cumulative 5.1 per cent instead of 4.1 per cent between 2009 and 2009, while on average between 2007-2010 economic growth contracted at an annual rate of 0.3 per cent.

The data helps to explain why it is taking so long for the US to shake off the recession.

"The general picture of the recession remains pretty much the same, it was a record decline before and now it is a even bigger decline," Steven Landefeld, the director of the department's Bureau of Economic Analysis, said.