US economy grows at slowest pace in two years as spending stalls

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The US has grown at the slowest pace in two years, making investors question how long America’s bull run since the global financial crisis can last.

First quarter gross domestic product growth disappointed, based on the surge of the US dollar, making business less competitive for exporters, sinking investment and American consumers keeping a tighter pinch on their wallets.

GDP growth, the measure of all goods and services from the US, between January and March reached a paltry annualized rate of 0.5 per cent, according to Commerce Department data.

That result would be significantly less than 2015’s overall GDP growth at 2.4 per cent.

Household purchases, which account for almost three quarters of the economy, rose at an annual rate of 1.9 per cent, compared to 2.4 per cent in the final three months of 2015. Spending has also slowed down - despite very cheap petrol prices as oil has continued to drop.

Low oil prices also resulted in a shocking annualized drop of investment - by 86 per cent in the mining sector, the lowest since 1958.

Andrew Hunter, assistant economist at Capital Economics, told The Independent that oil prices have started to stabilize and even creep up again, therefore he expected to see improved mining investment numbers in the near future. That will not encouage Americans to spend more, however, if they have to dish out more money to fuel their cars.

The continued rise of the US dollar resulted in a drag on net exporters, who became less competitive as their prices were driven higher than other countries.

“We don’t think the US dollar will appreciate in the same way as it has been and that should provide respite for exporters,” said Mr Hunter.

Several positives came out of the first quarter results, including evidence of rising income and a strong labour force.

2016 is also the third year in a row which has seen a disappointing start.

Mr Hunter added that there have been five or six quarters since the credit crisis when GDP growth slipped below 1 per cent, but it always rebounded over the rest of the year.

“There has been a slow down over the past couple of quarters but we must remember that quarterly GDP will always be volatile,” he said.

Capital Economics is forecasting 2 per cent overall GDP growth for 2016.