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WRAPUP 3-U.S. Q1 growth reading slashed in cautionary note on economy
June 26, 2013 / 1:15 PM / 4 years ago

WRAPUP 3-U.S. Q1 growth reading slashed in cautionary note on economy

* GDP growth lowered to 1.8 percent pace from 2.4 percent
    * Consumer spending, business investment readings both cut
    * Residential construction revised up

    By Lucia Mutikani
    WASHINGTON, June 26 (Reuters) - The U.S. government slashed
its estimate for first-quarter economic growth on Wednesday,
offering a cautionary note on the recovery as the Federal
Reserve ponders curtailing its massive monetary stimulus.
    Gross domestic product expanded at a 1.8 percent annual rate
in the quarter, the Commerce Department said. The economy was
previously reported to have grown at a 2.4 percent pace after a
gain of just 0.4 percent in the final three months of last year.
    Almost all categories were revised lower, with the exception
of home construction and government. Economists polled by
Reuters had expected GDP growth would be unrevised.
    The biggest surprise was consumer spending, which grew at a
2.6 percent pace, not the 3.4 percent rate previously estimated.
The revision to consumer spending, which accounts for more than
two-thirds of U.S. economic activity, sliced more than a half
percentage point off the GDP growth rate.
    Economists cautioned against reading too much into the data
given its backward-looking nature, but said it could weigh on
the Fed as it considers scaling back its bond buying.
    "At the margin, it tilts them a little bit less strongly
towards the tapering they were talking about a week ago," said
Sam Coffin, an economist at UBS in New York.
    Fed Chairman Ben Bernanke said last week that the central
bank could trim the $85 billion in bonds it is buying each month
sometime later this year and likely bring the program to a close
by mid-2014.
    Those comments led to a sharp selloff in stock markets and
drove the yield on the benchmark 10-year Treasury note to a
nearly two-year high.
    However, a range of strong U.S. economic data on Tuesday -
from business spending plans to home prices - bolstered investor
    After closing higher on Tuesday, stocks resumed their ascent
on Wednesday. Bonds were also up on the day, with yields
    The GDP report showed that homebuilding grew at a 14.0
percent rate in the first quarter, but a big jump in mortgage
rates on the back of Bernanke's remarks threatens to cool the
    Interest rates on fixed 30-year mortgages jumped more than a
quarter point last week to an average 4.46 percent, the Mortgage
Bankers Association said. That killed off refinance activity,
although demand for loans to purchase a home edged higher.

    The revision to consumer spending largely reflected weak
outlays that non-profits made on medical care services on behalf
of consumers, which economists tied to lower government spending
on health care. 
    Even given the revision, consumer spending picked up from
the fourth quarter despite a rise in taxes, and recent gains in
consumer sentiment suggest households are not pulling back.
    Growth in the first quarter was also weighed down by weak
exports, which contracted at a 1.1 percent pace in the first
quarter in a likely reflection of a global economic slowdown.
They had previously been reported to have expanded.
    Business spending barely grew, with investment on
nonresidential structures declining more sharply than previously
reported. The drop in spending on nonresidential structures was
the first in two years.  
    The pace of inventory accumulation was revised marginally
lower, but it still contributed more than half a percentage
point to GDP growth given that it was up sharply from the fourth
    Excluding inventories, GDP grew at a 1.2 percent rate, the
slowest in two years.

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