U.S. economy grew at 0.8 per cent rate in first quarter

The U.S. economy's slowdown in growth at the beginning of the year wasn't quite as bad as first thought, thanks to a bigger boost from housing and less drag from business investment and trade.

The gross domestic product, the broadest measure of economic output, grew at an annual rate of 0.8 per cent in the first quarter, slightly better than the 0.5 per cent first estimated, the Commerce Department said Friday. But the revised rate is still the weakest pace in a year.

• U.S. job growth slows in April

It was the second lacklustre quarter in a row, following a modest 1.4 per cent gain in the fourth quarter. At the beginning of this year, the economy was held back by turbulence in financial markets and global economic problems.

Economists are forecasting a rebound in the current quarter to growth of around two per cent. They expect continued solid gains in employment, which in turn should support increased consumer spending.

"Our forecast projects an annualized second-quarter 2016 GDP increase of 2.9 per cent," saidPaulFerley, assistant chief economist atRBC Economics, in a commentary.

Weak consumer spending

For the first quarter, consumer spending, which accounts for 70 per cent of economic activity, grew at a 1.9 per cent rate. That was the weakest performance in a year, reflecting a sharp slowdown in auto sales.

The upward revision from the initial estimate of 0.5 per cent reflects a weaker drag from business investment in structure and equipment, primarily because of new-found strength in construction of commercial structures such as shopping centres. In addition, the trade deficit did not widen as much as previously estimated and businesses did not slow their restocking of store shelves as much as first thought.

In the second half of the year, economists are forecasting that growth will strengthen further to around 2.5 per cent.

Job growth slows

Employers added another 160,000 jobs in April, a solid gain even if it was down from an average increase of 243,000 in the prior six months. The unemployment rate remained at a low fiveper cent, down by half from the 10 per cent high hit in the fall of 2009 when the economy was struggling to emerge from the worst economic downturn since the 1930s.

The U.S. economic expansion will celebrate its seventh birthday next month, making it the fourth longest recovery since World War II. But it has also been the slowest, averaging modest annual growth of 2.1 per cent.

"While that growth is nothing to write home about, we are relatively better off than many of our trading partners," said Sung Won Sohn, an economics professor at California State University, Channel Islands.

Financial markets went into a nosedive at the beginning of the year, dragged down by worries about global growth and a sharp slowdown in China, the world's second largest economy. There were serious concerns that the U.S. economy, because of stalling global growth, could be headed back into recession.

Since then, markets have recovered all their early-year losses. Recent data has shown that key sectors of the economy, from consumer spending to housing, have improved.

The Federal Reserve surprised investors last week when it released minutes of its April meeting showing that Fed officials believed that a rate hike in June was likely if the economy kept improving. The Fed raised a key rate in December by a quarter-point but has left rates unchanged so far this year.

"We expect that indications of above-potential growth being sustained will return the Fed to tightening mode by the fourth quarter of 2016," Ferley said.

• U.S. Federal Reserve ready to hike interest rate in June