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US growth ahead of expectations | |
(10 minutes later) | |
The US economy grew at an annual pace of 0.6% in the first quarter of 2008, a slightly stronger pace than expected | |
The first quarter figure from the US Commerce Department exceeded analyst expectations of 0.2% growth and eased fears of a slowdown. | |
But consumer spending, a key driver of the US economy, rose by just 1% in the first quarter. | |
The US central bank is widely expected to announce a cut in interest rates to 2% from 2.25% later on Wednesday. | The US central bank is widely expected to announce a cut in interest rates to 2% from 2.25% later on Wednesday. |
The 0.6% growth rate was the same as that seen in the last quarter of 2007. | |
Consumer weakness | Consumer weakness |
Shares traded higher on the Commerce Department report as fears of a sharp slowdown subsided. | |
However, consumer spending, which accounts for two-thirds of economic activity, grew at the weakest rate since the second quarter of 2001. | |
It rose 1% after growing 2.3% in the fourth quarter. | It rose 1% after growing 2.3% in the fourth quarter. |
"The outlook on the consumer side is still cloudy. There is no assurance that consumer spending is even steady," said Pierre Ellis, senior global economist at Decision Economics. | |
Spending on residential construction fell 26.7%, indicating the extent of the slowdown in the American housing sector. | Spending on residential construction fell 26.7%, indicating the extent of the slowdown in the American housing sector. |
High inventories also masked the true picture, other analysts said. | High inventories also masked the true picture, other analysts said. |
Stephen Malyon, senior currency strategist at Scotia Capital, said the GDP figures were a bit stronger than market expectations "but the strength is slightly misleading as inventories has accounted for 0.8% of the rise". | |
"Final domestic demand actually fell 0.4% underscoring the deterioration in the US economy, " he added. | |
Analysts say the central bank is still likely to announce a rate cut later. | Analysts say the central bank is still likely to announce a rate cut later. |