US hopes take a hit as growth is revised down

 
Julian Harris
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HOPES that America is bouncing back to a period of strong recovery were dashed yesterday, as a final estimate showed the economy expanding by just 1.8 per cent in the year to the end of March 2013.

GDP had previously been reported to have grown by 2.4 per cent during the 12 month period, with many economists expecting the figure to be confirmed by the latest reading.

The number suggests the US Federal Reserve may hold back its plans to slow down purchases of assets, known as quantitative easing (QE) and designed to stimulate the economy. It is currently spending $85bn each month on QE.

Yet some analysts believe the US economy remains relatively strong. “Growth may have been revised down slightly, but the US is demonstrating the type of economic improvement most of the western world would be jealous of, despite sequestration and tax rises,” said Nancy Curtin of Close Brothers Asset Management. “The private sector is still picking up speed, with first quarter consumption growth up over three per cent, compensating for shrinking government spending,” she added.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 2.6 per cent pace rather than 3.4 per cent. The revision largely reflected weak outlays on health care services.

Consumer spending grew at a 1.8 per cent rate in the fourth quarter of last year.

And exports, previously reported to have grown, actually contracted at a 1.1 per cent pace in the first quarter, cutting 0.15 percentage point from GDP growth. That likely reflects a slowdown in the global economy.

Business spending barely grew, with investment on nonresidential structures declining more sharply than previously reported.

The drop in spending on non-residential structures was the first in two years, the data showed.