US growth is down sharply in first quarter
US economic growth braked sharply in the first quarter as higher food and petrol prices dampened consumer spending and sent inflation rising at its fastest pace in two-and-a-half years.
Another report yesterday showed a surprise jump in the number of Americans claiming unemployment benefits last week, which could cast a shadow on expectations for a pick-up in output in the second quarter.
Growth in gross domestic product slowed to a 1.8pc annual rate after a 3.1pc fourth-quarter pace, the Commerce Department said. Economists had expected a 2pc pace.
With much of the pull-back traced back to sharp cuts in defence spending and harsh winter weather, analysts were hopeful the economy would regain speed in the second quarter.
"Growth was disappointing given the momentum of the economy heading into the year. We are still of the belief that the economy will improve out of the soft patch through this quarter into the second half of the year," said Brian Levitt, an economist at OppenheimerFunds in New York.
Economists were encouraged that details of the report, in particular consumer spending and business outlays on software and equipment, were not as weak as feared and said this suggested a foundation for stronger growth was in place.
Consumer spending accounts for about 70pc of US economic activity.
The Fed on Wednesday trimmed its growth estimate for 2011 to between 3.1 and 3.3pc, down from 3.4 to 3.9pc.
Some economists felt the US central bank's estimates might be a little optimistic, even though most agreed growth would soon strengthen.
Growth in the first quarter was curtailed by a sharp pull back in consumer spending, which expanded at a rate of 2.7pc after a strong 4pc rise in the fourth quarter. (Reuters)