US first quarter growth cut to 1.8%

The US economy grew only 1.8 percent in the first quarter, the Commerce Department said Wednesday, in a sharp downward revision from the previous estimate of 2.4 percent. It said personal spending was lower than previously estimated, and that both exports and imports actually declined in the January-March period. The third and final estimate for the quarter suggested that the payroll tax increases that kicked in in January, and fears about government spending cuts introduced in March, encouraged US households and businesses to hold back. Consumer spending grew only 2.6 percent in the quarter, compared to the previous estimate of 3.4 percent. Exports shrank 1.1 percent in the quarter, and imports -- which act to lower growth in GDP calculations -- contracted 0.4 percent. Another sharp revision was business investment in buildings and other structures, which shrank by 8.3 percent in the quarter, compared to the earlier estimate of just a 3.5 percent contraction. Government spending also pulled GDP lower, contracting by 8.7 percent at the federal level and 2.1 percent at the state level. The numbers reflected the lethargic turn of the economy that began at the end of 2012, when the pace of growth was only 0.4 percent. The final number for first quarter growth was well below the expectations of economists, who thought the previous estimate would be unchanged. Although most say growth in the second quarter has been firmer than expected, the fresh data could temper some of the optimism that had filled markets and led the Federal Reserve to predict that it will start winding down its stimulus later this year. "If we end up with three consecutive quarters of sub-2 percent growth, the Fed won't taper under those conditions. They need convincing signs of a pickup before they turn the taps," said economist Jennifer Lee of BMO Capital Markets.