US economy growth beats analyst's predictions
The under-pressure US economy inched ahead by slightly more than expected during the first quarter of this year, official figures showed today.
The 0.6% annual growth rate for GDP in the first quarter of 2008 was stronger than analyst forecasts and matched the figure reported for the final three months of last year.
However, the performance was still well down on last year’s 2.2% annual growth and did little to ease fears the powerhouse economy could be on the brink of recession amid falling property prices and a consumer spending slump.
Policymakers at the Federal Reserve were due to make an announcement on interest rates later today.
Fed chairman Ben Bernanke has already slashed rates five times from the 5.25% mark last summer down to 2.25%, but inflation risks may limit its hand in terms of further rate cuts.
London’s leading shares staged a turnaround after the GDP announcement, with the FTSE 100 Index reversing a 30 point fall. Trading was flat on Wall Street amid uncertainty ahead of the Fed’s interest rate decision.
Some economists had been predicting that the US economy would actually lurch into reverse during the opening quarter this year.
Data from the Bureau of Economic Analysis showed that the country’s housing market was the main drag on the economy, with builders slashing spending on housing projects by a 26.7%.
The US economy has been hit hardest by the sub-prime lending crisis, which has seen record numbers of repossessions from poor creditworthy individuals financed during the housing boom.
Sales of durable goods decreased 6.1% during the quarter, in contrast to an increase of 2.0% seen previously.
Consumer spending – which is vital to the country’s economic health – rose at just 1%. That was down from a 2.3% growth rate and was the slowest since the second quarter of 2001, when the US was suffering through its last recession.
GDP measures the value of all goods and services produced within the US and is the best measure of the country’s economic health.
The strength of the US economy is keenly watched around the world, especially in Britain which traditionally takes its cue from performance across the Atlantic.
Economist Richard Snook, from the Centre for Economics and Business Research, said the figures suggested a US recession was unlikely this year.
He said: “It now appears that the US will narrowly avoid recession in 2008, with the economy likely to strengthen in the second half as the fiscal stimulus comes into play.”
ING Bank economist Rob Carnell said the 0.6% was a “very soft growth figure by any yardstick”.
He added: “Consumption growth has more than halved from 2.3% in the last quarter of 2007 to 1.0%, and we would not be surprised to see this turn negative next quarter.”
