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US growth slows on weak spending and inventories

US economic growth cooled in the first quarter as businesses cut back on investment and restocked shelves at a slower pace, but stronger demand for automobiles softened the blow.

Gross domestic product expanded at a 2.2 per cent annual rate, the Commerce Department said on Friday in its advance estimate, moderating from the fourth quarter’s three per cent rate.

While that was below economists’ expectations for a 2.5 per cent pace, a surge in consumer spending took some of the sting from the report and growth was still stronger than analysts’ predictions early in the quarter for an expansion below 1.5 per cent.

Consumer spending which accounts for about 70 per cent of US economic activity, increased at a 2.9 per cent rate — the fastest pace since the fourth quarter of 2010. That compared to a 2.1 per cent rise in the fourth quarter.

There were other signs of underlying strength, with even home construction rising at its fastest pace since the second quarter of 2010, thanks to the unusually warm winter. But business spending fell for the first time since the fourth quarter of 2009, with investment in equipment and software rising at its slowest pace since the recession ended.

“It is disappointing that business investment fell, but that could prove temporary,” said Mark Zandi, chief economist at Moody’s Analytics in West Chester, Pennsylvania. — Reuters

Another drop in government defence spending, which confounded expectations for a strong rebound, also undermined growth.

The report will probably not change views on monetary policy. Federal Reserve Chairman Ben Bernanke on Wednesday expressed comfort with the current stance of Fed policy, but held out the prospect of more bond buying if the economy deteriorated.