US economy avoids recession, expands .9%

[Avril]

The US economy managed to show a 0.9 percent annual growth pace in the first quarter of the year, the government said Thursday, easing fears about a deep slump.



In its first revision of the period's gross domestic product (GDP), the Commerce Department hiked its estimate compared with an initial reading that reflected growth of 0.6 percent.

Most economists had predicted that the government would revise its tally to show economic momentum ticking along at 0.9 percent.

The higher revision to growth is likely to bolster the position of some analysts who believe the world's largest economy will avoid a recession amid a persistent housing slump, a related credit crunch and soaring world oil prices.

A recession is typically defined as two straight periods of negative economic activity. The Federal Reserve has been trying to avert an economic downturn by aggressive slashing short-term interest rates.

Growth during the first three months of the year marked the strongest quarter of economic momentum since the third quarter of 2007, the government survey showed.

The improved revision was mainly fueled by consumer spending on services, the exports of goods and services and government spending, the government said.

Despite the revision, US economic growth still remains subpar for the world's biggest economic powerhouse.

"The overall GDP growth rate is still indicative of a sluggish economy on the cusp of recession," said Paul Ferley, an economist at RBC Capital Markets.

The housing market slump continued acting as a significant drag on the economy, as did reduced consumer spending on durable goods, which includes big-ticket manufactured products such as cars, televisions and large household appliances.

The new reading left consumer spending, a critical driver of economic growth, pegged at 1.0 percent growth rate which marked a considerable moderation from a fourth quarter rate of 2.3 percent.

Consumer spending on services showed a 3.0 percent growth clip compared with a lesser 2.8 percent in the fourth quarter of last year, but spending on durable goods declined 6.2 percent during January-March against a positive 2.0 percent in the prior quarter.

The readings suggest Americans have cut back on big-ticket purchases as the housing downturn, a tighter credit environment and rocketing fuel costs buffet their wallets.

Spending on durable goods dived to its weakest depths since the fourth quarter of 2005, the report showed.

Real residential fixed investment, which essentially tracks new home construction, fell 25.5 percent during the first quarter after slumping a similar 25.2 percent in the fourth quarter of 2007.

Business spending outside housing declined 0.2 percent in the quarter, following a 6.0 percent gain in the prior three month period.

The combined exports of goods and services added 0.80 percentage points to overall economic growth, partly as exports were stoked by the ailing dollar as Americans appeared to purchase less foreign-made goods.

Exports grew 2.8 percent during the period while imports fell 2.6 percent. Some imported goods have become more pricey for Americans to purchase because of the weak dollar which has fallen sharply in value against major foreign currencies in the past year.

Government spending meanwhile grew at a 2.0 percent clip, matching its fourth quarter reading.

Without adjusting for inflation, the report showed that GDP, which measures the market value of America's output of goods and services, increased 3.5 percent to an annualized 14.196 trillion dollars.

An inflation gauge in the report showed a key price index linked to GDP rose 3.5 percent while core prices, excluding food and energy costs, rose at a 2.1 percent clip.

Although both inflation readings have cooled somewhat from the fourth quarter, economists said Fed remains worried about inflationary pressures, particularly as soaring oil prices have pushed up a range of energy-related costs this year.