Sluggish growth for US economy

The US economy grew at a disappointingly weak rate of 1.6% in the first quarter as prewar anxieties hurt consumer and business confidence.

Economists had expected a 2.4% growth rate in the first three months of this year, but the fact that there was expansion eased fears that the world's largest economy was heading for a double-dip recession.

The strength in the first quarter came from a narrowing of the huge US trade deficit, strong housing construction and consumer purchases of clothing, food and other non-durable items which offset a further drop in sales of cars and other durable goods.

GDP growth turned positive in the final three months of 2001 after three negative quarters of growth in America's first recession after a decade-long expansion. But growth in the past two quarters has been weak - the economy grew at a 1.4% rate during the last three months of 2002.

"It was a lacklustre, disappointing number, below expectations," Alan Ackerman, strategist at Fahnestock in New York, told Reuters. "The economy of late has given us mixed signals, and this number will take some steam out of recent optimism [in the stock market]."

The US economy is still not growing fast enough to prompt businesses to hire, and companies eliminated half a million jobs in February and March alone in what has been dubbed a jobless recovery. The economy needs to grow by at least 3% to reduce unemployment, according to many economists.

As he begins to focus on the economy in advance of next year's reelection campaign, President George Bush has been pushing for tax cuts to boost a limping economy. But many economists have criticised the proposal as it benefits mostly the rich while threatening to increase budget deficits.

A decline in car sales accounted for much of first quarter weakness. Harsh winter weather also kept consumers from the shopping malls in some parts of the country during February and early March.

Business investment in new plants and equipment proved to be surprisingly weak, shrinking by 4.2% in the first quarter following a 2.3% rise in the fourth quarter. Spending on equipment and software fell by 4.4%, the steepest drop since the third quarter of 2001.

The Paris-based economic thinktank, the Organisation of Economic Cooperation and Development, yesterday raised its expectations for the US in 2004, indicating US interest rates - at their lowest for decades - were "well-adapted" to the economy and forecast a gradual investment-led recovery.

But economists warned of threats ahead, especially if a new wave of job cuts leads to a sharp reduction in consumer spending, which accounts for nearly two-thirds of total US economic activity.

Disappointing as they were, growth in the US easily exceeded that in the UK, which grew only 0.2% in the first quarter, its weakest showing for a year.