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Economic growth slows in first quarter

April 27, 2012|By Don Lee
  • Strong car sales helped rev up consumer spending, but economic growth overall slowed in the first quarter. Salesman Larry Liu talks with Kay Lee at a Ford dealership in Colma, Calif.
Strong car sales helped rev up consumer spending, but economic growth overall… (David Paul Morris / Bloomberg )

Washington — The U.S. economic recovery lost a bit more steam in the first quarter than most experts expected, as business investments and inventories slowed and government cutbacks continued to be a drag on growth.

The nation’s economic output expanded at a modest 2.2% annual rate in the first three months of the year, down from a 3% increase in the nation’s gross domestic product in last year’s fourth quarter, the Commerce Department said Friday.

Most analysts were expecting a GDP growth rate of 2.6% or a little higher for the first quarter.

Inflation-adjusted consumer spending grew at a solid 2.9% pace in the first quarter, boosted again by robust car sales as well as a pick-up in consumption of services. But business spending came in much weaker; investments for equipment and software rose 1.7% from the prior quarter, compared with an increase of 7.5% in the fourth quarter.

Much of the GDP slowdown was because of a significantly smaller buildup of inventories of products in the first quarter. That was expected as manufacturers and other businesses had increased their stockpiles of goods late last year to levels higher than what demand seemed to support.

The GDP growth rate for the quarter will be revised two more times as officials compile more data for trade, inventories and other economic activity. Many economists expect the economy to keep expanding at a moderate pace this year.

The Federal Reserve earlier this week forecast GDP growth of 2.4% to 2.9% for 2012 – a pace that would likely bring down the unemployment rate slowly. The Fed predicted the jobless rate to dip to 7.8% to 8% in the last three months  of the year, from 8.2% in March. The nation’s April jobs report will be released next Friday.

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