US Q1CY13 GDP Stands Below Estimates

US GDP growth has once again disappointed the street as it came at 2.5% for the first quarter of the CY13. While growth has continued, the pace is slower than what was expected by many economists. The GDP growth estimates of experts were between 2.8% to more than 3%, but at 2.5%, the growth has come in lower than expected. The US economy in Q4CY12 grew merely by 0.4% and hence 2.5% still looks better.

The world's largest economy has been growing at about 2% for last 3 years. The economists had changed their growth estimates over higher consumer spending in the first 2 months of the year as well as soaring equity markets in the US, both of which failed to lift the GDP growth of the country.

Although the GDP growth has failed to get a thumbs-up from economists, the Federal Reserve must be happy with that number. The Fed has been buying bonds worth USD 85 billion through its quantitative easing program to improve the labour market conditions as well as boost economic recovery. The labour market data for March 2013 was weaker. The April 2013 data however has come in a positive territory, which means that the Fed's easing program is working. The GDP numbers may also give some confidence to the Fed and it might as well take a firm step to close the quantitative easing.

Economists, however, believe that the GDP growth numbers may only give a short-term relief to the Fed. The US government has begun to cut spending and has also increased taxes, both of which will impact the economy as overall consumption will take a hit. In fact, the government spending has already declined by 4.1% according to news reports. The defence standings are also down, which is likely to further hurt the economy.

Economists also believe that the GDP may slow down in the second quarter of CY13 to about 2%. Recent reports also suggest that the credit in the US has dried up and has led consumers and retailers to use the cash. This underlines the sluggish outlook on the economy.