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US growth ahead of expectations | US growth ahead of expectations |
(30 minutes later) | |
The US economy grew at an annual pace of 0.6% in the first three months of 2008, a slightly stronger pace than many analysts had expected. | |
The US Commerce Department figures exceeded analyst expectations of 0.2% growth and eased fears of a slowdown. | |
However, there were some worrying signs and consumer spending, a key driver of growth, rose by 1% in the quarter. | |
US central bank the Federal Reserve is widely expected to cut interest rates to 2% from 2.25% later on Wednesday. | |
Analysts said that there may be more rate cuts later this year should the rate of economic growth and consumer spending not pick up. | |
The 0.6% growth in the first quarter was the same as that seen in the last three months of 2007. | |
Consumer weakness | Consumer weakness |
Capital Economics said that the figures would "no doubt prompt plenty of speculation that the economy will narrowly avoid a recession". | |
"We see very little reason for optimism, however. There are some very troubling signs in this report." | |
Consumer spending, which accounts for two-thirds of economic activity, grew at the weakest rate since the second quarter of 2001, the Commerce Department report showed. | |
The strength is slightly misleading Stephen Malyon, Scotia Capital Can the US economy be revived? | The strength is slightly misleading Stephen Malyon, Scotia Capital Can the US economy be revived? |
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. | "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". | 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. | "Final domestic demand actually fell 0.4% underscoring the deterioration in the US economy, " he added. |
A separate report by ADP Employer Services showed that private sector employers added 10,000 jobs in April, slightly higher than expected. | A separate report by ADP Employer Services showed that private sector employers added 10,000 jobs in April, slightly higher than expected. |
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. |