HOPES for a strong American recovery were dashed yesterday by disappointing GDP figures and a surprising upturn in the number of new people claiming unemployment benefits.
First-quarter growth came in at an unchanged 1.8 per cent for the US, below the expectations of economists who had anticipated growth to be revised above the two per cent mark.
Growth is down from 3.1 per cent in the final three months of last year, with worse news lying in the breakdown of yesterday’s data.
Annual consumption growth was revised down to 2.2 per cent (from 2.7 per cent). While offset partly by stronger inventories, “this means we could now see a sharper run down in inventories in the second quarter,” said Paul Ashworth of Capital Economics.
The US Federal Reserve has forecast that the economy will expand by over three per cent this year.
Initial jobless claims jumped to 424,000 last week, from an upwardly revised 414,000 (from 409,000) in the prior week, pointing to a painfully slow improvement in the nation’s job markets.
Many economists had expected a decline in the number of fresh jobless claims. The four week moving average for claims eased slightly to 438,500 from a revised 440,250.
Employment growth of less than 200,000 for this month is being anticipated by many economists. “Our model suggests that payroll employment increased by around 150,000 in May,” Capital Economics said yesterday.
“That would be the smallest increase since January and would be especially disappointing after April's healthy 244,000 gain.”
“There is no doubt the economy has slowed,” said Robert Dye of PNC Financial Services in Pittsburgh, which is expecting a rise in payrolls of around 180,000 to 200,000 for the month.
“We will call the first half of 2011 as a soft patch. We should see growth accelerate in the second half in the three per cent to 3.5 per cent area.”