U.S. Economy Holds Steady in First Quarter at 0.6 Percent Growth, But...

Defying the expectations of many economists and analysts, the U.S. Department of Commerce said Wednesday that gross domestic product (GDP) in the country expanded at a 0.6 percent annual rate in the first quarter. The economy expanded by the same 0.6 amount in the fourth quarter of 2007, as Commerce left its initial reading unchanged.

Most economists had been expecting growth closer to 0 percent, or even a slight contraction in the quarter.

But the news was not all great. The headline number, while higher than expected, belied the level of real spending in the first three months of the year. With consumers buying less, companies sharply increased inventories which contributed 0.8 percentage points to the GDP reading. And due to a weak U.S. dollar, American goods were cheaper for those overseas, prompting a 5.5 percent increase in exports which added 0.2 points to the GDP.

Consumers scaled back spending in the quarter, as spending rose 1 percent after a rise of 2.3 percent in the fourth quarter of 2007. Spending on durable goods dropped 6.1 percent, spending on non-durable goods decreased 1.3 percent and spending on services increased 3.4 percent.

The drop in non-durable goods spending was the biggest decline in 17 years, since the recession of 1991. The overall 1 percent increase in consumer spending was the lowest since 2001. Despite the weakness of consumer spending numbers, it still added 0.7 percentage points to GDP. Consumer spending is the largest input for calculating GDP.

Investments were the main drag on the economy, with business investments dropping 2.5 percent in the quarter and subtracting 0.3 points from GDP, and residential investments plummeting 26.7 percent to subtract 1.2 percentage points from GDP.

Federal government spending increased 4.6 percent in the quarter.