10:20 AM New York – U.S. gross domestic product expanded at slower than expected annual rate of 2.5% as the weakness in consumer spending, defense and inventories outweighed the surge in residential investments.
The economic expansion in the first quarter to March fell short of expectations set by economists as business spending slowed and defense spending lagged.
In the quarter, the economic output expanded at annual rate of 2.5%, according to the data released by the Commerce Department. The estimate is the first of three for the quarter and the government is prone to revise the data even after two years.
The increase in the output accelerated after a dismal 0.4% growth in the December quarter when defense spending cuts kicked in and businesses cut down the buildup in inventories.
Economic growth rate in the recovery has average 2% in the last four years and the pickup in inventories buildup and a strong housing market sustained the economic expansion in the March quarter.
Residential investment jumped 12.6% from the previous quarter and consumption growth picked up to 3.2% from 1.8% in the previous quarter. However, consumer spending was driven by smaller savings and savings rate fell to 2.6% from 4.7% in the previous quarter.
Corporate spending increased at 3% annual rate after surging at 11.8% rate in the previous quarter.
Congressional Budget Office has estimated the sequestration to cut GDP expansion by 0.6 percentage point.