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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 quarter of 2008, a slightly stronger pace than expected 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 first quarter figure from the US Commerce Department exceeded analyst expectations of 0.2% growth and eased fears of a slowdown. The US Commerce Department figures 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. However, there were some worrying signs and consumer spending, a key driver of growth, rose by 1% in the quarter.
The US central bank is widely expected to announce a cut in interest rates to 2% from 2.25% later on Wednesday. US central bank the Federal Reserve is widely expected to cut 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. 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 weaknessConsumer weakness
Shares traded higher on the Commerce Department report as fears of a sharp slowdown subsided. Capital Economics said that the figures would "no doubt prompt plenty of speculation that the economy will narrowly avoid a recession".
However, consumer spending, which accounts for two-thirds of economic activity, grew at the weakest rate since the second quarter of 2001. "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.