U.S. Growth Trails Forecasts

Fourth-quarter GDP rose 2.5% as decline in defense outlays undercut gain in consumer spending.

The U.S. economy grew less than forecast in the first quarter as a drop in defense outlays undercut the biggest increase in consumer spending in two years.

Gross domestic product rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, Commerce Department figures showed today in Washington. The median estimate of 86 economists surveyed by Bloomberg called for a 3 percent gain. Consumer spending, the biggest part of the economy, climbed by the most since the fourth quarter of 2010.

Earnings Drop

Another reason for the slump in saving was that earnings plunged. Disposable income adjusted for inflation dropped at a 5.3 percent annualized rate from January through March, the biggest drop since the third quarter of 2009, after a 6.2 percent gain in the fourth quarter.

Fed Stimulus

Federal Reserve policy makers have said they will maintain stimulus until the labor market improves “significantly.” The economy’s inability to sustain faster growth means central bankers will probably affirm a pledge to keep buying bonds when they meet next week.

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