United States economic growth stronger than expected

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Residential real estate was a drag on growth for the fifth straight quarter, contracting at a 2.8 per cent annual pace and subtracting 0.11 percentage point from the pace of GDP gains, as housing starts and sales remained relatively sluggish.

But it continued: "Today's report bolsters our view that the soft patch in early Q1 was temporary, and that concerns over an imminent United States recession were overblown". Consumer spending, which accounts for more than two-thirds of economic output, rose 1.2% in the first quarter compared with 2.5% in the October-December period.

Those factors had varying effects on the first-quarter numbers, with reduced imports driving them higher and the shutdown acting as a brake.

Mark Zandi, chief economist at Moody's Analytics, said he expects growth for this year to be around 2.2 per cent, close to the average for the past 10 years.

The growth pickup mainly reflected a downturn in imports, greater state and local government spending, and rising inventories that were partially offset by slower consumer spending and fixed investment, the Commerce Department said in a statement Friday with the GDP data.

The increase is better than what most economists had expected.

The US economy grew faster than expected in the first quarter of 2019, driven mostly by exports and inventories, but economists anxious that a lack of momentum domestically might drag growth in the future.

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However, economists cautioned that there was weakness underlying the headline number.

"One thing is for sure: there's no way the FOMC is going to cut rates on the heels of this report", said Ken Kuttner, a former Fed staffer who is now an economist at Williams College.

And officials said it would likely have been even stronger without the government shutdown because dip in spending by government workers likely shaved 0.3 percentage points off growth in the quarter.

The trade standoff has also had an impact on inventories, which are expected to have increased in the first quarter at their strongest pace since 2015.

But analysts said the Federal Reserve, which has put interest rate hikes on hold, was unlikely to view the figures as the beginning of an economic boom and reverse its current policy. The US central bank increased borrowing costs four times in 2018.

A survey by the Confederation of British Industry found expectations for export orders in the next three months fell to their lowest level since mid-2009. There was also a slowdown in spending on services.

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