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Friday, April 27, 2012

US Economy Grows at Tepid 2.2% Pace; Misses Estimates

U.S. economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a moderate pace, but stronger demand for automobiles softened the blow.

Gross domestic product expanded at a 2.2 percent annual rate, the Commerce Department said on Friday in its advance estimate, moderating from the fourth quarter's 3 percent rate.

While that was below economists' expectations for a 2.5 percent pace, a surge in consumer spending took some of the sting from the report. However, growth was still stronger than analysts' predictions early in the quarter for an expansion below 1.5 percent.

Although the details were mixed, the GDP report offered a somewhat better picture of growth compared with the fourth quarter, when inventory building accounted for nearly two thirds of the economy's growth. In the first quarter, demand from consumers took up the slack.

Consumer spending which accounts for about 70 percent of U.S. economic activity, increased at a 2.9 percent rate - the fastest pace since the fourth quarter of 2010. That compared to a 2.1 percent rise in the fourth quarter.

There were some signs of underlying strength, with even home construction rising at its fastest pace since the second quarter of 2010, thanks to the unusually warm winter.

But business spending fell for the first time since the fourth quarter of 2009, with investment in equipment and software rising at its slowest pace since the recession ended.

Business spending fell at a 2.1 percent pace after rising 5.2 percent in the fourth quarter.

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