US Q1 growth quickens, but misses forecasts

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By Lucia Mutikani ,Reuters

WASHINGTON — U.S. economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes. Gross domestic product expanded at a 2.5-percent annual rate, the Commerce Department said on Friday, after growth nearly stalled at 0.4 percent in the fourth quarter. The increase, however, missed economists’ expectations for a 3-percent growth pace.

Part of the acceleration in activity reflected farmers’ filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5 percent. Given the smaller-than-expected increase and signs the economy has weakened in recent weeks, the GDP data will probably weigh on U.S. stocks. It could also give ammunition for the Federal Reserve to maintain its monetary stimulus.

The U.S. central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of US$85 billion a month. Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year. There are indications the weakness persisted into April. Broad-based Gains The GDP report showed contributions to growth from all areas of the economy, with the exception of government, trade and investment by businesses in offices and other commercial buildings. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 3.2-percent pace — the fastest since the fourth quarter of 2010. It grew at a 1.8-percent rate in the fourth quarter of last year.