First-quarter growth slows on inventories, weak business spending

Fri Apr 27, 2012 9:11am EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - Economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a slower 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 and growth was still stronger than analysts' predictions early in the quarter for an expansion below 1.5 percent.

"There's nothing catastrophic happening, this is just slow growth and this underscores that the economy is on sound footing but nothing more," said Steven Baffico, chief executive at Four Wood Capital Partners in New York.

Futures for the broad-based S&P stock index pared gains after the GDP report, while U.S. Treasuries prices turned positive. The dollar extended losses against the yen and fell against the euro.

Although the details were mixed, the GDP report offered a somewhat better picture 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 other 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.   Continued...

 
A worker guides a tube into place at a construction site in San Francisco, California March 15, 2012. REUTERS/Robert Galbraith