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US economy grows 2.5% in first quarter below expectation of 3%

By Ken Hanly     Apr 26, 2013 in Business
Washington - While below expectations the 2.5% growth rate the first quarter of 2013 was well above the anemic 0,4% rate of the last quarter of 2012.
Avery Shenfeld, chief economist of CIBC World Markets Economics in Toronto, said: "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 into the spring trimester."
If inventory buildups were excluded, the growth rate was even less at 1.5%.
A bright spot was consumer spending which increased at a 3.2% rate. This is the fastest pace since the last quarter of 2010 and much higher than the 1.8% of the last quarter of 2013. This pace may not continue as incomes dropped by 5.3% during the recent quarter. This decrease is the largest since the third quarter of 2009.
The savings rate is also low at just 2.6%, the lowest since the fourth quarter of 2007. In the last quarter of 2012 the rate was 4.7%. The lower growth figures may prompt the US central bank to continue purchasing bonds at the rate of $85 billion a month to stimulate the economy. Tax increases and budget cuts could slow growth later in 2013.
March figure for employment, retail sales, and manufacturing weakened in March after gaining in the first two months of 2013. Car purchases and spending for utilities during cold weather boosted total spending. Spending went up in spite of increased fuel prices and the return of the payroll sales tax. Inflation pressures were low at just 0.9%. Home-building continued to be a bright spot with eight consecutive quarters of growth although increases are slowing down.
In March, the total number of unemployed Americans was 11.7 million. The rate for adult men was 6.9% and for adult women 7.0% but for teenagers of both sexes it was a whopping 24.2%. There were few jobs created in March with only 88,000 being added. This is the lowest increase in nine months. Economists had been predicting an increase of almost 200,000. Surprisingly, the jobless rate actually declined from 7.7% in February to 7.6% in March. However, this could represent an increase in those who have given up on the job search.
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