American growth surprises with its strength

UNEXPECTEDLY strong US growth in the first three months of this year boosted the American stock market yesterday, but bonds fell back as traders feared that the time when the Federal Reserve has to tighten interest rates may be approaching.

The economy slowed only marginally in the first quarter of this year, according to the latest figures, with growth still strong at an annualised rate of 4.5 per cent. In the fourth quarter it had hit 6 per cent. The new figure from the US Commerce Department is a first estimate and may yet be increased as more detailed figures come in.

The strength of the domestic economy continued unabated, dragged down only by America's weak trade performance. The trade deficit subtracted 2.4 percentage points from growth as it hit record levels, with US exports sagging and imports booming. The domestic economy alone expanded by an astonishing 6.9 percentage points even though America is in its eighth year of growth.

Consumer expenditure is still powering the expansion, with consumption rocketing along at 6.7 per cent, the strongest increase in 11 years. American households were dipping into their savings to fund their purchases, with personal savings dipping by 0.5 percentage points, the biggest absolute decline since records were first kept - although not as negative as during the 1930s.

News of continuing strength in the US economy followed signs of further weakness in Japan and Europe. Japan's unemployment rate jumped to a record high of 4.8 per cent. The signs from Europe were also disappointing, with industrial output across the EU falling 0.3 per cent in February. Italy, Denmark and Germany reported the strongest declines.

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