US economic growth slows to 1.8%: By Shannon Bond: The US economy grew at an annualised rate of 1.8 per cent in the first three months of the year as rising prices took a toll on consumer spending. Preliminary figures from the Bureau of Economic Analysis showed growth slowing from the 3.1 per cent rate in the fourth quarter of 2010. The rise was slightly below the 2 per cent rate expected by economists.
The slowdown “was due principally to the surge in energy prices, adverse weather, and a sizeable drop in public sector spending,” said Paul Ashworth, chief US economist at Capital Economics. “All things considered, it could have been worse. Nevertheless, in a quarter when the economy began to benefit from additional monetary and fiscal stimulus, we had originally expected a lot more.“ Personal consumption spending grew 2.7 per cent in the first quarter, compared with a 4 per cent rise in the fourth quarter. Prices increased 3.8 per cent, faster than the previous quarter’s 2.1 per cent, driven in large part by food and energy costs.
Gross domestic product growth was also slowed by a “sharp upturn” in imports, falling exports and a steeper decline in government spending. Federal government spending sank 7.9 per cent, much faster than the 0.3 per cent decline recorded in the fourth quarter and local and state government spending fell 3.3 per cent, compared with a 2.6 per cent drop in the last three months of 2010. The pullback in government spending, particularly at the state and local level, “reflects the ongoing budget problems that will continue to be a drag on the overall economy for some time yet”, Mr Ashworth said...
Contractionary fiscal policy is contractionary.