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US grows by 0.6% in first quarter US growth ahead of expectations
(10 minutes later)
The US economy grew by 0.6% in the first quarter of 2008, a slightly stronger pace than expected 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 a 0.2% growth and eased fears of a slowdown. 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 American economy, rose just 1% in the first quarter. 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.
Shares traded higher on the Commerce Department report as fears of a sharp slowdown subsided. The 0.6% growth rate was the same as that seen in the last quarter of 2007.
Consumer weaknessConsumer weakness
Yet consumer spending, which accounts for two thirds of economic activity, grew at the weakest rate since the second quarter of 2001. 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 isno assurance that consumer spending is even steady," said Pierre Ellis, senior global economist at Decision Economics. "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.
Added Stephen Malyon, senior currency strategist at Scotia Capital: "A little bit strong 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 U.S.economy. " 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.
In the last quarter of 2007, growth slowed sharply to an annual rate of just 0.6%.