US economy grew 2.4% in first quarter

WASHINGTON—The US economy grew at an annualized rate of 2.4 percent in the first quarter, according to the latest Commerce Department estimate released Thursday.

The small downward revision from the 2.5 percent growth initially estimated last month was unexpected, with analysts forecasting the rate would hold steady.

“The general picture of overall economic activity is not greatly changed,” the Commerce Department said.

Gross domestic product growth in the first quarter was the strongest since the fourth quarter of 2011, and far stronger than the 0.4 percent pace in the final quarter of 2013.

But over the last two quarters, GDP growth averaged a tepid 1.4 percent pace in the world’s largest economy.

“The Q1 GDP data continue to paint the picture of an economy with strengthening fundamentals that is facing significant fiscal drag,” said Ellen Zentner of Nomura Securities International.

The downward revision to GDP growth in the January-March period was due partly to lowered estimates of exports and government spending.

Government belt-tightening to rein in ballooning budget deficits kicked into higher gear on March 1, when the sharp “sequester” federal budget cuts started aimed at paring $85 billion in spending through September.

All government spending dropped 4.9 percent, while federal spending dived 8.7 percent.

A bright spot was an upward revision of consumer spending, the key driver of the US economy.

Consumer spending increased 3.4 percent in the first quarter, up from a 3.2 percent initial estimate, reflecting a surge in services spending as utilities use fired up during an unusually cold winter.

“Most encouraging is that this month’s revision did not erase the ‘pop’ in services spending, where at 3.1 percent quarter-on-quarter the sector has posted its fastest growth rate since the 2005 second quarter,” said Robert Brusca of FAO Economics in a research note, adding: “Yes this IS the job creating sector!!”

Inflationary pressures remained modest, with GDP prices up 1.1 percent after a 1.0 percent gain in the fourth quarter.