US growth less than expected as spending drops
THE US economy grew less than previously calculated in the first quarter, reflecting less spending on services by consumers who were trying to make ends meet after taxes rose. The French economy contracted in the same period.
Gross domestic product expanded at a revised 1.8pc annualised rate in the first three months of the year, down from a prior estimate of 2.4pc, figures from the Commerce Department showed.
Household purchases, which account for about 70pc of the economy, were revised to a 2.6pc advance compared with the 3.4pc gain estimated last month.
Households cut back on travel, legal services and personal care expenditures and curbed spending on healthcare as the two-percentage-point increase in the payroll tax caused incomes to drop by the most in more than four years.
A housing rebound and improving job market will probably help revive purchases in the second half of the year, one reason economists predict that the economy can withstand the automatic government budget cuts.
"Recent consumer data have held up better than expected. Gains in net wealth are lending an important support to consumer spending," Kevin Cummins, an economist at UBS Securities in Stamford, Connecticut, said before the report.
The US government's GDP estimate is the third and final for the quarter.
The economy grew at a 0.4pc annualised pace in the last three months of 2012.
The US data came as separate figures from France show its economy shrank 0.2pc in the first three months of the year, confirming that the country had slipped into recession.
The economy also slipped by the same amount in the final three months of 2012.
Official data from Insee, the state's national institute of statistics and economic studies, showed household spending was almost stable while exports continued to decline.
(Bloomberg and Reuters)