U.S. First-Quarter Growth Cut to 1.8 Percent

Economists cautioned against reading too 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 percent annual rate, the Commerce Department said in its final estimate on Wednesday. Output was previously reported to have risen at a 2.4 percent pace after a 0.4 percent 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 U.S. 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.

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

Economists polled by Reuters had expected first-quarter GDP growth would be left unrevised at 2.4 percent. When measured from the income side, the economy grew at a 2.5 percent rate, slower than the fourth-quarter’s brisk 5.5 percent pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.6 percent pace rather than 3.4 percent. The revision largely reflected weak outlays on health care services.

Consumer spending grew at a 1.8 percent rate in the fourth quarter of last year.

Exports, previously reported to have grown, actually contracted at a 1.1 percent pace in the first quarter, cutting 0.15 percentage point from GDP growth. That 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 percent rate, the slowest in two years.

(Reporting by Lucia Mutikani; Additional reporting by Richarc Leong in New York; Editing by Andrea Ricci)

Article source: http://www.nytimes.com/reuters/2013/06/26/business/26reuters-usa-economy.html?partner=rss&emc=rss