Friday, June 01, 2007

US growth weakest in four years

US growth weakest in four years
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: May 31 2007 14:50 | Last updated: May 31 2007 14:50

The US economy slowed last month to its sluggish pace in four years, figures published yesterday showed.

US economic growth slowed to 0.6 per cent last quarter in the worst performance for the economy in four years, according to the latest government estimates.

The pace of expansion slowed dramatically from a rate of 2.5 per cent the previous quarter as the Commerce Department on Thursday cut its initial estimate of 1.3 per cent growth in the first quarter by more than half.

The anaemic performance was worse than economists expected but is likely to be viewed by the Federal Reserve as a prelude to a broad-based recovery.

The Fed said in minutes published on Wednesday that it expected a moderate pickup in growth in coming quarters.

However, the central bank warned that the 18-month long housing slump could drag out.

There were some positive signs for the economy in the latest report, as consumer spending remained strong with estimates of personal consumption upgraded to 4.4 per cent growth rate.

Business investment was also revised up modestly with an overall a 2.9 per cent rate, lifted by increased spending on computer equipment and software.

Key factors behind the cut in the growth estimate were the widening trade deficit and a reduction in business inventories.

The trade gap widened as imports increased more strongly than initially estimated, with a gain of 5.7 per cent, up from 2.3 per cent, while exports fell by 0.6 per cent.

Businesses cut their stock levels by an equivalent of $4.5bn a year, reversing the initial estimate that inventories had risen by $14.8bn.

The reduction dragged growth lower last quarter but was seen by many economists as leaving room for companies to ramp up production and stockpile goods this quarter.

There were also signs of stubborn inflation pressures as a key measure of core prices – the personal consumption expenditure - rose at a rate of 2.2 per cent, excluding volatile food and energy costs.


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