Page last updated at 13:36 GMT, Thursday, 29 May 2008 14:36 UK

US growth stronger than thought

Woman shopping in Wal-Mart store
Consumer spending accounts for two-thirds of economic output

The US economy performed better in the first few months of 2008 than initially thought, figures show, the second piece of positive news in recent days.

The economy grew at an annual pace of 0.9% between January and March, the Commerce Department said, up from a previous estimate of 0.6% growth.

Some commentators argue that the US economy is already in recession.

But this latest boost followed recent figures showing orders of durable goods to be healthier than expected.

New orders for manufactured goods fell by 0.5% last month but this represented half the 1% decline that had been expected.

Brighter outlook

The conventional definition of a recession requires a country's output to contract in two successive quarters.

Thursday's upward revision in GDP growth was in line with analysts' expectations.

Things looked worse back in January when the job figures were turning negative
Nick Bennenbroek, Wells Fargo

It was driven by a fall in demand for imports and by healthy construction spending on commercial property.

In contrast, spending on residential construction was down 25% compared with a year ago while consumer spending, which accounts for two-thirds of overall output, is now at its weakest level in seven years.

But economists said they were encouraged by signs growth was more balanced than first thought, with exports up 2.8% over the period.

"The GDP revision was bang on," said Nick Bennenbroek, currency strategist at Wells Fargo.

"Of course, 0.9% growth is hardly a stellar performance for the economy but things looked worse back in January when the job figures were turning negative."

Positive economic signs have been rare at a time when the economy is suffering from a weak housing market, declining consumer confidence and a severe banking crisis.

The US Federal Reserve has cut interest rates this year in an effort to stave off a recession while the Bush administration has given families tax rebates worth billions of dollars.

But the impact of these measures on consumers' willingness to spend is not likely to be felt until later this year.

The National Association of Business Economics is forecasting annualised growth of just 0.4% in the second quarter although it expects growth to pick up to 2.2% in the third quarter.




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