US Growth Pace Slows To 0.5% In First Quarter

The US economy has turned in its weakest performance for two years, with the annualised pace of growth slowing to 0.5% - below the forecast 0.7%.

Consumer spending, which accounts for 70% of economic activity, grew by just 1.9% in the first three months of 2016 - down from the 2.4% growth seen in the final quarter of last year.

Shoppers are being frugal, cutting back on big purchases such as cars, despite cheaper petrol.

They have also reduced their debt and increased savings. Nationwide (LSE: NBS.L - news) , savings rose from $678.3bn in the fourth quarter of 2015 to $712.3bn in the first three months of this year.

Also contributing to the poor economic performance was a 5.9% drop in business investment - the worst quarterly plunge since 2009.

This was led by a record 86% decline in the oil and gas exploration category, with cheap oil hurting the profits of companies such as Halliburton (Hanover: HAL.HA - news) and Schlumberger (LSE: 0CT7.L - news) .

Exporters were also hit by the rising value of the US dollar.

In fact, all sectors have weakened since the 1.4% pace of GDP growth seen in the fourth quarter last year - except for the housing market.

Wall Street stocks were down in early Thursday trading following the announcement, with the Dow Jones Industrial Average at 17,932.32, down 0.6%.

The broad-based S&P 500 lost 0.4% at 2,086.16, while the tech-rich Nasdaq Composite Index fell 0.2%.

On Wednesday, the Federal Reserve had warned that economic activity had "slowed" but that labour conditions had "improved further".

It (Other OTC: ITGL - news) is the buoyant labour market that analysts hope will reverse the economy's fortunes, as applications for unemployment benefits are at a record 43-year low.