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Last Updated: Friday, 28 April 2006, 15:02 GMT 16:02 UK
Big growth spurt for US economy
Work on the rebuilding of the damaged levee in the Lower Ninth Ward in New Orleans
The Federal government is aiding hurricane recovery efforts
The US economy roared ahead in the first quarter of 2006, growing at its fastest rate in two and a half years, according to the Commerce Department.

Gross domestic product grew at a 4.8% annual rate, more than twice the 1.7% recorded in the last quarter of 2005.

Growth was boosted by government spending to deal with damage from last year's Gulf Coast hurricanes.

Earlier this week, the Federal Reserve chairman said he expected growth to slow to a more sustainable level.

Inflation fears

In its report, the Commerce Department said that consumer and business spending and investment all helped drive the economy forward.

The main drag on growth is America's huge trade deficit, which chipped 0.8 percentage points from first quarter growth.

"With crude oil prices soaring and China investing in new export capacity at a breakneck pace, the trade deficit will continue to pull down U.S. growth," said Peter Morici, a University of Maryland economist. "Without a devaluation of the dollar against the Chinese yuan, U.S. growth will slow significantly in the second half of this year."

Ben Bernanke
Mr Bernanke will have his hands full keeping growth on an even keel

On Wednesday, Fed boss Ben Bernanke told Congress that the main risks to growth were a sustained period of very high oil prices and a big slump in the housing market.

He hinted that the Fed might stop raising interest rates soon, but warned that inflationary pressures could change this strategy if energy prices continue to rise.

However, despite the strong growth seen between January and March, the most recent core inflation data, ignoring food and energy costs. slowed to 2% from the 2.4% seen in the last quarter of 2005.

Elsewhere on Friday, figures from the University of Michigan suggested that consumers were beginning to fret about high petrol prices.

The trade deficit will continue to pull down U.S. growth
Peter Morici, University of Maryland

Its index of consumer sentiment for April dropped to 87.4 from March's 88.9.

"So consumers feel happy but they are beginning to become a little less happy about gasoline price increases," said Brian Fabbri, chief economist at BNP Paribas in New York.

"This is not a big move in confidence but it does say that confidence is probably levelling off and would probably continue to do so while gasoline prices go up."


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