US economy grew 2.4 percent in first quarter

The US economy grew at a modest 2.4 per cent annual rate from January through March, slightly slower than initially estimated. Consumer spending was stronger than first thought, but businesses restocked more slowly and state and local government spending cuts were deeper.
The Commerce Department said today that economic growth in the first quarter was only marginally below the 2.5 percent rate originally estimated. That's still much faster than the 0.4 percent growth during the October-December quarter.
Economists believe growth is slowing to around a 2 per cent rate in the April-June quarter, as the economy adjusts to federal spending cuts, higher taxes and further global weakness. Still, many say the decline may not be as severe as once thought. That's because solid hiring, surging home prices and record stock gains should keep consumers spending.

Consumer spending accounts for 70 per cent of economic activity as measured by the gross domestic product, the economy's total output of goods and services.
The government's second look at GDP in the first quarter showed that consumer spending roared ahead at a 3.4 per cent rate. That's the fastest growth in more than two years and even stronger than the 3.2 per cent rate estimated last month. Healthy growth in consumer spending shows many Americans are shrugging off an increase this year in Social Security taxes that has reduced most paychecks.
And more demand from consumers could also prompt businesses to restock at a faster rate later this year. Business inventories grew in the first quarter but at a slightly slower pace than first estimated. That was a key reason for the small revision.

A big reason that consumers have been able to withstand higher taxes is the job market has improved. Employers have added an average of 208,000 jobs a month since November. That's well above the monthly average of 138,000 during the previous six months.

Surging stock prices and steady home-price increases have also allowed Americans to regain the USD 16 trillion in wealth they lost to the Great Recession. Higher wealth tends to embolden people to spend more. Some economists have said the increase in home prices alone could boost consumer spending enough to offset a Social Security tax increase.
The weakest area of the economy continues to be government spending, which fell for the 10th quarter out of the last 11.

The 4.9 per cent rate of decline was even larger than first estimate, reflecting further drops in defense spending and weaker activity at the state and local level than first estimate.
And with the federal government furloughing workers and trimming other spending to meet the mandates of the sequester that took effect in March, government activity will be a drag on growth for the rest of the year.
The housing recovery continued to add to growth at the start of the year. Home construction, one of the economy's top performers, grew at an annual rate of 12.1 per cent in the first quarter, its third consecutive quarter of double-digit growth.

Businesses, however, reduced the pace of their investment in equipment and computer software. That slowed to a growth rate of 4.6 per cent in the first quarter, down from growth of 11.8 per cent in the fourth quarter.