Economy Expands 2.5% in First Quarter on Consumer and Business Spending

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The Commerce Department’s Bureau of Economic Analysis said Friday that real gross domestic product (GDP) in the U.S. grew at a 2.5 percent annual rate in the first quarter of 2013.

While the figure was significantly lower than most economists’ expectations – many predicted GDP growth above 3 percent – the surge in consumer spending and business investment was applauded by Wall Street and analysts.

Immediately following the report, pre-market trading was down on Wall Street. But through mid-morning, the Dow Jones Industrial Average was slightly positive on the day.

GDP-Q1-2013After expanding at just a 0.4 percent rate in the fourth quarter of 2012, the 2.5 percent growth rate last quarter was a welcome change. After initially reacting poorly to the news of missed expectations, the stock market cheered the deeper numbers, which showed consumer spending surging 3.2 percent in the quarter, the highest in two years. Business investment also added an additional one percentage point to overall output.

Government spending in the quarter was the biggest drag on the economy. With the budget sequestration in place, federal government spending dropped 8.4 percent, with defense falling 11.5 percent and non-defense spending down 2 percent.

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