Monday, July 2, 2012

Weak first quarter growth bodes ill for economic outlook

(Reuters) - The U.S. economy grew only modestly in the first quarter, the government confirmed on Thursday in a report that underscored the economy's vulnerability as global growth slows.

Gross domestic product rose at a 1.9 percent annual rate, with motor vehicle output accounting for more than half the gain, the Commerce Department said. The growth pace, which was unchanged from a prior reading, marked a sharp step down from the fourth quarter's 3 percent advance.

Auto production contributed 1.16 percentage points to GDP growth, reflecting pent-up demand that has since waned.

"Given that domestic growth is being generated by the autos sector, as we go into the second quarter, a pretty soft outcome looks likely," said Jeremy Lawson, a senior economist at BNP Paribas in New York.

A separate report from the Labor Department showed the number of Americans filing new claims for jobless benefits edged down last week, but remained in a range that indicated the job market was still struggling to gain traction.

Most economists estimate second-quarter growth at around 2 percent, but they say risks are stacked to the downside, given the debt troubles in Europe and an unclear fiscal policy path at home, which are sapping business and consumer confidence.

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