US economy first-quarter growth of 5.6% falls short of forecasts

The US economy grew in the first quarter at the fastest pace in nearly two years, but not as much as first estimated, according to revised figures released yesterday.

The revision was slight, but gave investors, who have again turned bearish on the US economic outlook, another reason to sell. High-tech stocks led the decline. The Nasdaq composite index sank 1.8 per cent in early trading on the GDP news and fears of weak prospects among computer chip makers, capping a sharp reversal from last week's rally.

The Commerce Department said the US economy grew at a seasonally adjusted annual rate of 5.6 per cent from January to March, instead of the 5.8 per cent announced in its preliminary report in April. Its earlier estimate was based, in part, on projections and preliminary figures. Growth in consumer spending and exports turned out weaker and the investment slump more severe than forecast.

Consumer spending on cars, trucks and other durable goods fell at the fastest pace since the end of the 1990-91 recession. Consumers took a break from their buying binge at the end of last year - a spending spree encouraged by the Federal Reserve's rapid reduction of interest rates.

Even after the revision, the data show the US enjoyed its fastest growth since the second quarter of 2000, when the economy expanded 5.7 per cent just after high-tech stock prices began to implode in March 2000. The economy grew only 1.7 per cent in the fourth quarter of 2001, as it began to recover from recession and the September attacks.

One piece of good news in the report was the government's measure of first-quarter profits. Profits grew at the fastest pace in nearly two years, after shrinking 10.6 per cent in the fourth quarter. A rebound in profits is seen as an important factor in reversing the two-year investment slump. Many economists see that slump as an obstacle to strong and sustainable growth. A final first-quarter GDP estimate will be released next month.

In a separate report, the Commerce Department said sales of new homes in the US grew 1 per cent in April to a seasonally adjusted annual rate of 915,000, which was more than expected.