Spending up, but economy grows less than forecast

The US economy grew less than forecast in the first quarter as a decline in defence spending outweighed the largest increase in consumer spending in two years.

The US economy grew less than forecast in the first quarter as a decline in defence spending outweighed the largest increase in consumer spending in two years.

Gross domestic product rose at a 2.5 per cent annual rate, lower than forecast, after a 0.4 per cent fourth-quarter advance, Commerce Department figures showed.

The median estimate of 86 economists surveyed by Bloomberg called for a 3 per cent gain.

Consumer spending, the biggest part of the economy, climbed by the most since the fourth quarter of 2010.

A boost to wealth from rising stock and home prices combined with a reduction in savings to help cushion an increase in the payroll tax that has now begun to pinch. Recent data signal the strength in other parts of the economy may also not be sustained as across-the-board cuts in planned federal spending, together with slower stockpiling, may be restraining investment and employment.

"There are ebbs and flows but the overall picture is one of a moderately growing economy," Joshua Shapiro, chief US economist at Maria Fiorini Ramirez Inc. in New York said before the report.

Economists' GDP forecasts ranged from 1 per cent to 3.8 per cent.

Government outlays declined for the 10th time in the past 11 quarters, restraining growth. Defence spending fell at a 11.5 per cent annualised pace.

The report showed household consumption, about 70 per cent of the economy, climbed at a 3.2 per cent rate following a 1.8 per cent increase in the previous quarter.

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