World Business

US economy up 3.2% in Q1

(Xinhua)
Updated: 2010-05-01 11:47

WASHINGTON: Strong consumer spending helped drive US economic growth to an annual rate of 3.2 percent in the first quarter of 2010, according to the first estimate released Friday by the Commerce Department.

The growth pace was just below market expectations of 3.3 percent and down on the 5.6 percent recorded in the fourth quarter of 2009.

The US government usually releases three estimates of the quarterly gross domestic product (GDP) -- the output of goods and services produced by labor and property located in the United States.

The department said the increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures.

Consumer spending rebounded at a 3.6 percent pace, the strongest showing since early 2007 -- before the economy tipped into a recession. That marked a big improvement from the fourth quarter when consumer spending grew at 1.6 percent pace.

However, analysts say consumers will be wary of stepping up spending much further since the unemployment rate is high at 9.7 percent and is expected to stay elevated in the months ahead.

They believe sluggish income growth and problems getting loans could restrain shoppers' appetite to spend.

According to the report, other factors that propelled the first quarter economic growth included private inventory investment, exports, nonresidential fixed investment and imports.

Builders once again trimmed spending on housing projects, following two quarterly gains. Spending on commercial real estate ventures plunged 14 percent, the seventh straight quarterly decline.

Exports grew 5.8 percent in the first quarter, compared with an increase of 22.8 percent in the fourth quarter. Imports rose 8.9 percent -- reflecting stronger demand by US consumers.

Spending by businesses on equipment and software rose at 13.4 percent, following an even bigger 19 percent growth rate in the fourth quarter in 2009.

In the first quarter, the federal government increased spending at a 1.4 percent pace, after being flat in the prior quarter.

But state and local government spending and residential fixed investment decreased.

Although the first quarter GDP growth is in line with expectations, economists believe growth may slow in the second half of the year as the government stimulus policies wane.

According to the latest World Economic Outlook report released by the International Monetary Fund last week, the US economy was expected to grow 3.1 percent in 2010, but will only increase 2.6 percent in 2011.

Economists also warn fiscal problems are worsening as the economic recovery cannot generate enough revenue to support the government's mass spending.

The US federal budget imbalance, which hit a record high level of $1.4 trillion in 2009 fiscal year, is expected to reach $1.56 trillion in 2010.

Federal Reserve Chairman Ben Bernanke warned again Tuesday that the US fiscal policy was unsustainable in the long run. He urged the White House and Congress to take measures as soon as possible to tackle the debt issue.