US first-quarter growth rate cut to 1.8%

US economic growth was more tepid than previously estimated in the first quarter, held back by a moderate pace of consumer spending, weak business investment and declining exports.

Economists cautioned against reading to much into the data given its backward-looking nature, but said it could weigh on the Federal Reserve as it considers whether the economy is strong enough for it to start scaling back its monetary stimulus.

Gross domestic product expanded at a 1.8 per cent annual rate, the Commerce Department said in its final estimate today. Output was previously reported to have risen at a 2.4 per cent pace after a 0.4 per cent stall speed in the fourth quarter.

Details of the report, which showed downward revisions to almost all growth categories, with the exception of home construction and government, could cast a shadow over the Fed’s fairly upbeat assessment of the economy last week.

"This gives (the market) hopes that the Fed won't be tapering as aggressively," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee.

Financial market conditions are tightening after Fed Chairman Ben Bernanke said last week the US central bank would likely begin to slow the pace of its bond-buying stimulus later this year and stop the program in 2014.

Economists fear that could undercut growth, which has recently shown signs of picking up.

US stock index futures pared gains on the report, while prices for longer-dated US government bonds rallied, with the 30-year bond rising a full point. The dollar fell against the euro but gained against the yen.

When measured from the income side, the economy grew at a 2.5 per cent rate, slower than the fourth-quarter’s brisk 5.5 per cent pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.6 per cent pace rather than 3.4 per cent. The revision largely reflected weak outlays on health care services. Consumer spending grew at a 1.8 per cent rate in the fourth quarter of last year.

Exports, previously reported to have grown, actually contracted at a 1.1 per cent pace in the first quarter, cutting 0.15 percentage point from GDP growth, which likely reflects a slowdown in the global economy.

Business spending barely grew, with investment on nonresidential structures declining more sharply than previously reported. The drop in spending on nonresidential structures was the first in two years.

The pace of inventory accumulation was revised marginally down, adding more than half a percentage point to GDP growth. Excluding inventories, GDP grew at a 1.2 per cent rate, the slowest in two years.

Reuters