US Economic Growth Accelerates

The US economy grew at a 1.9% annual rate in the first quarter, faster than reported a month ago, official figures showed today.

The latest reading on gross domestic product (GDP), the broadest measure of the economy, for January to March, showed the world's largest economy expanding slightly faster than the 1.6% rate estimated a month ago, the commerce department reported.

The department said that consumer spending grew at a 2% rate in the first quarter instead of the 1.4% initially reported. This was a key reason for the upward revision in GDP as consumers account for about two-thirds of economic growth.

But even with the improvement, the pace of economic growth was still weaker than normal, and was not enough to generate new jobs. In the three months from February through to April alone, the US shed more than 500,000 jobs, prompting economists to brand the current situation a "jobless recovery".

Economic growth needs to accelerate to at least 3% to reduce unemployment, which currently stands at an eight-year high of 6%, some economists estimate. GDP increased by an average 3.6% per year during the country's record expansion from 1992 to 2000.

In the latest evidence of the weak jobs market, new US jobless claims fell last week, but the number of people continuing to draw unemployment benefits rose to its highest level in about 18 months.

Initial claims for state unemployment insurance benefits, an early indication of the resilience of the job market, fell to 424,000 in the week ended May 24 from a revised 433,000 in the prior week, the labour department said.

"The claims numbers remained above the 400,000 level, which a lot of people watch," Gary Thayer, chief US economist for AG Edwards, told Reuters. "There's been no significant improvement over the last month. Claims are still elevated, and it shows that the labour market is still soft."

Despite the recent bounce in US stock markets, analysts remain sceptical about the prospects of strong US growth this year.

"From a fundamental perspective, we think that a genuine US investment recovery is still some quarters away. The main reason is that manufacturing is still in recession," a Deutsche Bank briefing note said.