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Figure raises hope of country avoiding recession despite housing crisis

(WASHINGTON) The US economy plodded ahead at a 0.9 per cent pace in the first quarter - slightly better than first estimated - but still underscoring caution on the part of consumers and businesses walloped by housing, credit and financial problems.

The new reading on gross domestic product, released by the Commerce Department yesterday, was an improvement from the government’s initial growth estimate for the January-to-March quarter as well as the economy’s performance in the final quarter of last year. Both periods were pegged at a 0.6 per cent growth rate.

Gross domestic product, or GDP, measures the value of all goods and services produced within the United States.

The first-quarter performance matched analysts’ forecasts and offered a somewhat encouraging sign because it showed that the economy was still growing at that time. The figure did not meet a definition of recession, which under a rough rule is two straight quarters of shrinking GDP, and might raise hopes that the country can dodge a full-blown downturn.

Fallout from the housing crisis continued to be a big drag on overall economic growth.

Builders slashed spending on housing projects by 25.5 per cent, on an annualised basis, in the first quarter. That was the most in 27 years.

Consumers - whose spending is the economy’s lifeblood - are feeling the pressure from the economy’s problems.

They increased spending at just a one per cent pace in the first quarter. That was the slowest since the last recession in 2001.

Businesses also showed some caution, cutting spending on equipment and software. However, investment in commercial construction was not as weak as the government had first estimated, contributing to the upward revision to first-quarter GDP.

One of the bright spots keeping the economy afloat in the first quarter was export growth. Exports grew at a 2.8 per cent pace, although that was not nearly as much as first estimated, they still were a force for GDP growth. The falling value of the US dollar has made US exports less expensive to foreign buyers.

In other economic news, more people signed up for jobless benefits last week, the latest sign of softness in the employment market. The Labour Department said that new applications filed for unemployment insurance rose by 4,000 to 372,000 last week. The increase left claims slightly higher than the 370,000 level that economists were expecting.

Looking ahead, top forecasters at the National Association for Business Economics predict that the economy will creep along at a 0.4 per cent growth rate during the April-to-June period, which is expected to be the weakest quarter of the year. — AP

Source : Business Times - 30 May 2008