US economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already-weakening US economy could struggle to cope with deep government spending cuts and higher taxes.
Gross domestic product expanded at a 2.5pc annual rate, the Commerce Department said yesterday, after growth nearly stalled at 0.4pc in the fourth quarter. The increase, however, missed economists' expectations for a 3pc growth pace.
"It wasn't the bang-up start to the year we had hoped for, and the signals from March suggested that we will only decelerate from here into the spring trimester," said Avery Shenfeld, chief economist at CIBC World Markets Economics in Toronto.
Part of the acceleration in activity reflected farmers' filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5pc.
While consumer spending increased solidly, it came at the expense of saving, which does not bode well for future growth.
Given the smaller-than-expected increase and signs the economy has weakened in recent weeks, US stock index futures fell, while prices for Treasury debt rose. The dollar weakened against the yen.
The GDP report could also give ammunition for the Federal Reserve to maintain its monetary stimulus. The US central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85bn (€65bn) a month.
"They are going to mark down their economic assessment. The second quarter is tracking closer to 1pc," said Jacob Oubina, a senior US economist at RBC Capital Markets in New York.
Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year. There are indications the weakness persisted into April.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 3.2pc pace – the fastest since the fourth quarter of 2010. It grew at a 1.8pc rate in the fourth quarter of last year. (Reuters)