US Economy Thwarts The Start Of A Recession Through The First Quarter

Source: Daily FX

Though speculation of an oncoming US recession reached a fever pitch over the past few months, the government's data has revealed that economic activity held surprisingly steady through the opening three months of the year. In fact, the 0.6 percent clip of annualized expansion matched the pace from the previous quarter and bested economists' steadily revised forecasts of a slight decleration to a 0.5 percent pace. Putting the first quarter's rate of growth into context, the world's largest economy has ran at a 0.6 percent (the weakest pace five years) in three out of the past five quarters. In turn, this reality will act as a vail of caution when economists and traders forecast economic activity in coming quarters. The breakdown for the Commerce Department certainly gives reason to doubt the health of the economy going forward.

The highlight among the component figures was no doubt the 1.0 percent growth in personal consumption. While this was greater than the 0.7 percent figure expected, it nonetheless marks a significant cooling from the pace seen over the previous two quarters. What's more, since the end of the three quarter, gasoline and food prices have surged to records, mortgage costs rose and lending restrictions have tightened, and most importantly consumer confidence has plunged to a 26-year low. With these factors still at work, the American consumer - who accounts for nearly three quarters of GDP - may eventually steep the economy into a contraction. Outside of the personal consumption, the data was as bearish as pessimists had expected. Fixed investment dropped 9.7 percent over the period, lead by an intensified 26.7 percent plunge in residential activity. Government spending has failed to pick up the slack with a steady 2.0 percent rate of growth that matched the first quarter's level. And, even trade - the single greatest hope for a quick boost to expansion - has failed to show the benefits of slowing domestic demand and a weak US dollar. Imports rose 2.5 percent, following a contraction through the final months of 2007. More importantly, export shipments cooled for a second consecutive quarter to 5.5 percent - its slowest pace in a year.