US economic growth slows sharply to 1.8pc

WASHINGTON: US economic growth slowed to 1.8 percent pace in the first quarter of 2011 as government spending cuts and rising food and fuel costs dented activity, government data showed on Thursday.

Gross domestic product (GDP) growth from a 3.1 percent annual rate in the fourth quarter of 2010, the Commerce Department said in its first estimate for the period.

The deceleration in the world's biggest economy was in line with analyst expectations, some of who blamed heavy wintry weather for a key part of the figure, a downturn in investment in residential and non-residential buildings.

But new figures on the jobs market also released on Thursday underscored the frailty of the country's recovery from the 2008-2009 recession, with 8.8 percent of workers still jobless.

The Labour Department said new claims for US unemployment insurance benefits surged more than expected last week to the highest level since January: a seasonally adjusted 429,000, up from the prior week's 404,000.

First quarter growth was hit in the first quarter by a 7.9 percent cut in federal government spending and a 3.3 percent drop in spending by state and local authorities, all trying to pare debt while receipts from taxes and fees languish.

Private consumption, the biggest driver of the economy, continued to expand, but was also sharply off-pace: 2.7 percent, compared to 4.0 percent in the October-December period.

A sharp rise in fuel and food commodity prices contributed to the slower growth in consumer spending.

But, faced by a sluggish recovery and with new job creation still sluggish, Americans also saved more in the quarter, putting away a significant chunk of the period's 8.3 percent rise in income that came from a temporary cut in payroll taxes granted by the government.

Positive signs in the data for the period included a rise in investment in equipment, software and inventories, suggesting companies were more positive about the economic outlook and were in better financial condition.

Natixis economist Thomas Julien called the report "not so disappointing."

"The deceleration in consumption was less important than expected and most of the slowdown is attributable to temporary factors," he said, citing the huge eastern US snowfalls of January and February, and a slowdown of Chinese buying of US products during the lunar new-year celebrations.

But other analysts were more pessimistic.

With the six-month growth rate of just over 2.4 percent, "the economy's growth isn't strong enough to put any downward pressure on the overall unemployment rate," said Josh Bivens of the Economic Policy Institute.

"In short, unless the economy starts growing appreciably faster, the problem of high unemployment will be quite persistent."

"Contraction fiscal policy is concretionary," University of California at Berkeley economist and former Treasury official Brad DeLong commented on his popular blog, referring to government spending cuts.