Washington: The US reported disappointing economic growth of 2.2 per cent in the first quarter of 2012 as inventories continued to pile up and a large fall in government spending knocked 0.6 percentage points off the total.
The figure was behind market expectations of around 2.7 per cent at an annualised rate and compares with a 3 per cent pace of growth in the fourth quarter of 2011.
Spot gold hit a session high on Friday after the data and the dollar fell to its lowest since mid-April against the yen, while US stock futures pared back early gains.
Overall the release suggests that the economy is still on a path of steady but mediocre expansion, with growth in consumer demand too slow to overwhelm headwinds such as government cutbacks.
"The US economy remains a bright light in the global economy, although the light is hardly blinding, and also showing some signs of fading," said Chris Williamson, chief economist at Markit in London.
Consumption was resilient, growing at an annualised pace of 2.9 percent, and adding 2 percentage points to the growth rate. But investment would have been almost flat were it not for an inventory build up that added 0.6 percentage points to growth. Net trade was flat, but had been expected to subtract from growth, and may cause downward revisions to the figures.
The first estimate of GDP must be treated with caution because crucial information – such as customs documents for the final month of the quarter - is not ready. The number is often revised a few weeks later once more precise data arrives.
"Undoubtedly the brightest spot in this report was the resurgence in consumer spending," said Beata Caranci, deputy chief economist at TD Bank, but she warned that "we don’t expect to see a repeat performance in the strength of spending" in the second quarter.
Final sales to domestic purchasers, a crucial measure of underlying demand in the economy, rose at a pace of only 1.6 per cent. That is slower than the economy's long-run trend rate of growth.
The figures do little to resolve a divergence between weak demand and stronger job creation that has puzzled the US Federal Reserve. The price index for consumption excluding food and energy, a measure closely followed by the Fed, also rose at an annualised rate of 2.1 per cent in the quarter.
Going into 2012, many economists expected a weak first quarter after a large inventory pile up at the end of 2011, but unseasonably warm weather led to an early start at building sites in the north of the US and lured consumers out to the shops.
Real disposable income rose by only 0.4 per cent, however, so consumers only managed the 2.9 per cent growth in consumption by putting less money aside, with the savings rate falling to 3.9 per cent from 4.5 per cent in the quarter before.
That is not sustainable and a number of forecasters now expect slower consumption growth in the second quarter unless job creation picks up, boosting wage bills and putting more money into consumer pockets.
Copyright The Financial Times Limited 2012
Posted on www.ft.com on April 27, 2012 1:50 pm
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