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Spending blow for US economy

WASHINGTON: A drop in government spending dragged more on the US economy than initially thought in the first three months of the year, although consumer spending looked relatively resilient to Washington's austerity drive.

Other reports yesterday showed the number of new jobless claims rose modestly last week while contracts on previously owned homes climbed to a three-year high in April.

Together, the reports pointed to an economy that has held up reasonably well despite government constraints, but nevertheless faced headwinds severe enough to dissuade the US Federal Reserve from trimming its monetary stimulus in the immediate future.

"(The reports) paint the picture of an economy with strengthening fundamentals that is facing significant fiscal drag," said Ellen Zentner, an economist at Nomura in New York.

Gross domestic product expanded at a 2.4 per cent annual rate during the first quarter while government spending tumbled at a 4.9pc annual rate.

Also holding back growth during the quarter, businesses outside the farm sector stocked their shelves at a slower pace.

Most economists still expect economic growth will slow around the middle of 2013 as budget cuts are enacted.



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