Saturday, April 28, 2007

US economic growth loses momentum

US economic growth loses momentum
By Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: April 27 2007 18:06 | Last updated: April 27 2007 23:13

The US economy suffered a serious loss of momentum in the first three months of this year, new figures revealed on Friday, as growth fell to 1.3 per cent, its lowest in four years.

The annualised growth rate fell a full half-point short of market expectations. However, after an initial sharp response, financial markets recovered as investors took comfort in more detailed data suggesting that the underlying trajectory of the US economy was closer to 2 per cent growth.

Stocks closed slightly up on the day. Treasury bonds were largely unchanged, with 10-year Treasuries yielding 4.69 per cent. The dollar, which initially plunged 0.7 per cent to a new record low against the euro, pulled back to trade about 0.3 per cent lower.

The data show that unexpected weakness in net exports and government spending added to the anticipated severe drag on growth from housing construction during the first quarter.

Michael Mackenzie discusses surprisingly low GDP figures, and some positive US economic signals
Corporate spending was also subdued. But consumer spending remained very strong, with real personal consumption rising at an annualised rate of 3.8 per cent.

Most economists expect the surprise weakness in net exports and government spending – for which there is no obvious macro-economic explanation – will reverse in the months ahead.

Final sales to domestic purchasers – a figure that excludes volatile swings in net exports and in inventories – rose 2 per cent, essentially unchanged from the third and fourth quarters of 2006.

Art Hogan, chief market analyst at Jefferies & Co, said: “We expected the first quarter would be the slowest period of growth this year and investors expect a rebound in the economy.”

David Greenlaw, economist at Morgan Stanley, said his bank was now “upping our tracking estimate for second-quarter GDP from 2 per cent to 2.4 per cent”.

The main risk to the US economy continues to be from the housing slump, which showed no signs of abating.

Meanwhile, Erik Nielsen, an economist at Goldman Sachs, said there was no indication that the stronger euro was “biting” European growth.

Additional reporting by Ralph Atkins in Frankfurt, Richard Beales and Michael Mackenzie in New York and Peter Garnham in London


Post a Comment

<< Home