U.S. economy grows 2.5% in first quarter

WASHINGTON (MarketWatch) – The U.S. economy expanded at a 2.5% pace in the first three months of 2013, up from 0.4% in the fourth quarter, as consumer spending rose at the fastest rate in two years and businesses restocked warehouse shelves. Yet government spending fell sharply again ands imports surged to act as drags on economic growth, according to data released Friday by the Commerce Department. Economists surveyed by MarketWatch had forecast growth to rise to 3.2%, so the less-than-expected number could weigh on U.S. markets. Consumer spending – the motor of the U.S. economy – rose 3.2% to mark the sharpest gain since the end of 2010, though some of the increase was the result of higher oil prices. Inventories also soared to an estimated $50.3 billion after a scant $13.3 billion increase in the prior quarter, but that buildup is probably unsustainable. Final sales of U.S.-made goods and services, a more precise gauge of demand, rose a much smaller 1.5%. That matched the lowest increase in eight quarters. Investment in residential housing, a source of recent economic strength, jumped 12.6% to mark the third straight strong advance. Business spending on equipment and software rose 3%. In a bit of a surprise, military spending sank 11.5% after an unusually steep drop of 22.1% in the fourth quarter. And overall government spending fell 4.1% in the first three months of the year, perhaps partly reflecting federal spending cuts that began to take effect in early March. Meanwhile, imports surged 5.4% after falling 4.2% in the fourth quarter, spurred by higher oil prices. Americans had to pay more to fill up at the gas station. Exports climbed 2.9% after a 2.8% drop in the fourth quarter. Inflation as measured by the PCE price index rose at an annual rate of 0.9%, down from 1.6% in the prior two quarters. Core PCE rose slightly faster at 1.2% The GDP report will be refined through two further updates over the next few months.