The US government slashed its estimate for first-quarter economic growth yesterday, offering a cautionary note on the recovery as the Federal Reserve ponders curtailing its monetary stimulus.
Gross domestic product expanded at a 1.8 per cent annual rate in the quarter, the Department of Commerce said in its final estimate. The economy was previously reported to have grown at a 2.4 per cent pace after a near stall-speed advance of 0.4 per cent in the final three months of last year.
Details of the report showed downward revisions to almost all growth categories, with the exception of home construction and government. The biggest surprise came in consumer spending, which grew at a 2.6 per cent pace, not the 3.4 per cent rate previously estimated.
"We ended the quarter and started the year much weaker than previously thought," said Millan Mulraine, a senior economist at TD Securities in New York.
"That said we still have a fairly constructive outlook. If you look at the confidence numbers, that suggests that we might be in for a fairly decent rebound in spending activity, maybe not this quarter but certainly in the months ahead."
The downward revision to consumer spending, which accounts for more than two-thirds of US economic activity, largely reflected weak outlays on health care services. Despite the downward revision, the pace of consumer spending picked up from the fourth quarter even as households faced higher taxes.
Exports, previously reported to have grown, actually contracted at a 1.1 per cent pace in the first quarter, cutting 0.15 percentage point from GDP growth. That likely reflects a slowdown in the global economy.
Business spending barely grew, with investment on non-residential structures declining more sharply than previously reported. The drop in spending on non-residential structures was the first in two years.
Fed chairman Ben Bernanke said last week that the economy appeared strong enough for the central bank to start scaling back on its bond-buying stimulus later this year. He said the programme could likely come to a close by mid-2014.