MercoPress. South Atlantic News Agency

US growth in first quarter much slower than anticipated

Unemployment remains high and defence spending was down

US economic growth slowed in the first three months of 2011 to an annualised rate of 1.8%, corresponding to a 0.4% quarterly increase. This compares with a revised annual growth rate of 3.1% in the previous quarter, official figures show.

Economic growth has been hampered by high energy prices which have weakened consumer spending and lower government outlays. Consumer spending fell to 2.7% from 4% in the previous quarter.

Analysts said that although the GDP data was disappointing, it was not unexpected after the federal government slashed defence spending and heavy winter weather delayed construction projects.

On Wednesday, the Chairman of the Federal Reserve Ben Bernanke said that the struggling housing market would continue to weigh on the US economic recovery.

He pointed out that home building and commercial construction were both “very weak” in the first quarter.

The Federal Reserve has cut its economic growth forecast for this year, citing weaker growth for the first quarter. However, Mr Bernanke also said that he believed the elements leading to weaker economic growth would lessen throughout the year.

“Most of the factors that account for the slower growth in the first quarter appear to us to be transitory,” he added. The Fed now expects growth for 2011 to be between 3.1% and 3.3%.

Other worrisome signals also came from consumer confidence and from the labour market where new applications for jobless benefits rose to their highest level in three months.

The Bloomberg Consumer Comfort Index decreased to minus 45.1 in the period ended April 24, the lowest level since the end of March, from minus 42.6. Measures of personal finances and buying climate dropped.

Applications for jobless benefits unexpectedly rose last week to the highest level in three months, a report from the US Labour Department showed with unemployment insurance claims jumped by 25,000 to 429,000.

Household purchases, which account for about 70% of the economy, rose at a 2.7% pace last quarter after a 4% gain in the final three months of 2010.

Government purchases fell at a 5.2% annual rate after a 1.7% decrease in the fourth quarter. US defence spending dropped at an 11.7% pace, the most since 2005. Federal government spending declined the most in 11 years.

Defence spending in first quarter was held down by the US Congress’ failure to pass an annual appropriations bill for the current fiscal year. Because it was operating under a stopgap bill, the Defence Department’s outlays were frozen at fiscal 2010 levels.