US CONSUMERS drove the country’s nascent economic recovery in the first quarter, accounting for the bulk of a 3.2 per cent annualised increase in output during the period.

The pace of growth was slightly below forecasts, and slower than the 5.6 per cent rate in the fourth quarter of last year, but a report from the commerce department indicated the US remains on track for a moderate recovery.

Economists were encouraged by the 3.6 per cent growth in consumer spending, the best quarterly performance by US shoppers since early 2007. ­Consumer spending increased by 1.6 per cent in the fourth quarter of 2009.

Business, which drove the initial phase of the recovery last year, continued to be a source of strength. Non-residential investments increased by 4.1 per cent in the first quarter, as equipment and software spending grew 13.4 per cent.

In addition, companies added $31.1 billion to inventories on the expectation of growing demand, after reducing stocks in previous quarters.

The US economy has now expanded for three successive quarters, with output improving dramatically from a year ago, when it fell by 6.4 per cent.

US president Barack Obama said the US’s “economic heartbeat is growing stronger”. But he warned: “We’ve still got a long way to go on our road to recovery. There are going to be more ups and downs along the way.”

Many economists consider a 3 per cent growth rate weak compared to the more rapid rebounds that typically follow severe downturns. In addition, some expressed concern consumer spending might flag after government support is withdrawn.

Moreover, a 3 per cent growth rate is not expected to be enough to quickly reduce ­unemployment, which stands at 9.7 per cent and is turning into a significant liability for the administration as congressional Democrats head towards November’s mid-term elections.

“Time will tell whether the job market recovery will be a mirror image of the steep decline seen earlier, or if it will, as we believe, be a prolonged affair,” said Joshua Shapiro, chief US economist at MFR.

The gross domestic product report confirmed that inflation remained tame, keeping pressure off interest rates.

The core personal consumption expenditures price index, the preferred measure used by the Federal Reserve for inflation, grew by 0.6 per cent, a record low, in the first quarter. – Copyright The Financial Times Limited 2010