Author`s name Alex Naumov

US Economy has worst growth since 2002

The US economy slowed to a 0.6 percent growth pace in the first quarter of 2007, the weakest in over four years, the government said Thursday in a revision for the January-March period.

But even though the world's largest economy appeared to sputter, many analysts said the report reflected the low point for the year and that there are already signs of a rebound.

Gross domestic product ( GDP) was revised down from last month's estimate of 1.3 percent and was the slowest pace since the fourth quarter of 2002, the Commerce Department report showed.

The figure was below the 0.8 percent growth pace forecast by most Wall Street analysts and came after a 2.5 percent expansion in the fourth quarter of 2006.

Many economists said details of the report validate the view of the Federal Reserve that growth would pick up over the course of 2007.

"The cloud on first-quarter growth is the silver lining for the second quarter," said Drew Matus, senior economist at Lehman Brothers.

"I think we'll see second-quarter growth above three percent and 2.5 percent for all of 2007."

Matus and others said consumer spending was better than expected and that inventories had been brought to a low point, requiring factories to ramp up production.

"GDP was revised a little more than expected but a lot had to do with a huge downward adjustment in inventories which actually sets things up for a good gain in production in the second quarter and raises optimism for the economic outlook," noted Sal Guatieri at BMO Financial Group.

The Commerce Department said the latest revision came as a result of a bigger-than-expected trade deficit, which meant more goods consumed in the United States were produced abroad.

Real estate remained the main drag on economic growth, but the decline was a bit less than earlier estimated. Spending on residential investment fell 15.4 percent, instead of an earlier estimate of 17 percent.

Consumer spending was the main driver of growth, increasing 4.4 percent, up from the earlier estimate of 3.8 percent. This is seen as a key because consumer spending accounts for about two-thirds of US economic activity.
Business investment was better than earlier estimates, growing 2.9 percent, revised up from 2.0 percent, reports.

Today's GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.2 percent to an annualized $1.67 trillion. For all of last year, profits were up 21 percent.

The government also issued updated income figures for the previous two quarters. Personal income was revised up by $31 billion for the fourth quarter of 2006, boosting the gain over the previous quarter to an annual rate of 5.9 percent from 4.7 percent, Bloomberg reports.

The increase suggests either payrolls last quarter were undercounted or employees were paid more than previously estimated, economists said.

The National Association for Business Economics predicts the economy will expand at a 2.3 percent pace in the April-to-June quarter.

In the first quarter, there was a larger trade deficit than first thought. That ended up shaving a full percentage point from the GDP. Businesses cut back on inventory investment as they tried to make sure unsold stocks of goods didn't get out of whack with customer demand. That lopped off nearly a percentage point to first quarter GDP.

Those were the biggest factors behind the government slicing its initial GDP estimate released a month ago by as much as it did.

The sour housing market also restrained overall economic activity. Investment in home building was cut by 15.4 percent, on an annualized basis, in the first quarter. However, that wasn't as deep a cut as the 17 percent annualized drop initially estimated. And, it wasn't as severe as the 19.8 percent annualized drop seen in the final quarter of last year, the AP reports.

Source: agencies

Prepared by Alexander Timoshik

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