Fears grow over state of US economy

Gross domestic product expanded at a 2.5 per cent annual rate, the Commerce Department said yesterday, after growth nearly stalled at 0.4 per cent in the fourth quarter. Economists had expected a 3 per cent growth pace.

“It wasn’t the bang-up start to the year we had hoped for, and the signals from March suggested that we will only decelerate from here,” said Avery Shenfeld, chief economist at CIBC World Markets Economics.

Part of the pick-up in activity reflected farmers’ filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5 per cent.

Still, most areas of the economy contributed to growth, with the exception of government, the trade sector and investment by businesses in offices and other commercial buildings.

While consumer spending increased solidly, it came at the expense of saving, which does not bode well for future growth.

US stocks opened lower on the data, while prices for Treasury debt rose and the dollar weakened against the yen.

The GDP report offers ammunition for the Federal Reserve to maintain its monetary stimulus. The US central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85bn a month.

Data weakened substantially in March.