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Washington: A buildup in inventories kept the US economy afloat in the first quarter despite the weakest consumer spending since 2001 and the biggest drop in home building in more than 26 years, a government report showed yesterday.
The Commerce Department said gross domestic product or GDP expanded at a 0.6 per cent annual rate in the first quarter, matching the fourth quarter's advance and handily topping a forecast for 0.2 per cent growth in an advance poll of economists.
Some economists said the report suggested the US economy was on a bit firmer ground than had been thought, but others were still bracing for worse times ahead as businesses ratchet back production further to try to sell off inventories.
"We expect that the coming inventory correction will send growth into negative territory, save a truly heroic effort by the US consumer to spend their way out of the current malaise with their $600 rebates," said Joseph Brusuelas, US chief economist at IDEAglobal in New York.
Tax rebate cheques that are part of a government economic stimulus program began to flow this week to upwards of 100 million Americans.
Government bond prices initially dipped on the stronger-than-expected gr-owth figure but later recovered as investors focused on weakening consumer spending.
Separately, ADP Employer Services said US private-sector employers added 10,000 jobs in April, another surprise on the upside since forecasts had been for 60,000 jobs to be lost.
The reports were issued just before Fed policy-makers began a second day of deliberations that is expected to result in a decision to trim official interest rates another quarter percentage point to try to keep expansion going.
Analysts said they still expected a rate reduction.
"This is not going to disrupt things at the Fed," said economist Pierre Ellis of Decision Economics in New York.
GDP is the broadest measure of total economic activity within US borders and, despite a better-than-expected first-quarter performance, details of the report reflect widespread weakening that many analysts fear will lead to a recession.
The GDP figures are an initial measure of first-quarter performance and will be revised twice in coming months.
Consumer spending that fuels two-thirds of economic activity through consumption of goods and services, grew at the weakest rate since the second quarter of 2001, when the economy was last in recession. It rose at a one per cent rate after growing 2.3 per cent in the fourth quarter.
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