MercoPress. South Atlantic News Agency

US economy expands 4.8% in first quarter

The US economy sprinted 4.8% in the first quarter of 2006, the fastest rate in two and a half years, following on a modest 1.7% in the last quarter of 2005 according to the Commerce Department.

Growth was boosted by government spending to deal with damage from last year's Gulf Coast hurricanes. In its report, the Commerce Department said that consumer and business spending and investment all helped drive the economy forward. However the main drag on growth is America's huge trade deficit, which chipped 0.8% points from first quarter growth.

"With crude oil prices soaring and China investing in new export capacity at a breakneck pace, the trade deficit will continue to pull down U.S. growth," said Peter Morici, a University of Maryland economist.

"Without a devaluation of the dollar against the Chinese yuan, U.S. growth will slow significantly in the second half of this year."

Wall Street analysts had forecasted 4.9%. The IMF estimates the US economy will expand 3.4% in 2006.

Earlier this week, the Federal Reserve chairman said he expected growth to slow to a more sustainable level.

On Wednesday, Fed boss Ben Bernanke told Congress that the main risks to growth were a sustained period of high very high oil prices and a big slump in the housing market.

He hinted that the Fed might stop raising interest rates soon, but warned that inflationary pressures could change this strategy if energy prices continue to rise.

However, despite the strong growth seen between January and March, the most recent core inflation data, ignoring food and energy costs slowed to 2% from the 2.4% seen in the last quarter of 2005.

Elsewhere on Friday, figures from the University of Michigan suggested that consumers were beginning to fret about high petrol prices. Its index of consumer sentiment for April dropped to 87.4 from March's 88.9.