Rise in fuel cost slows growth of US economy

WASHINGTON, April 24 (Bloomberg): The US economy probably grew at a slower pace in the first quarter as a jump in gasoline prices caused consumers to cut back, economists said a report this week will show. Gross domestic product rose at a 1.9 per cent annual pace after increasing at a 3.1 per cent rate in the previous three months, according to the median estimate of 66 economists surveyed by Bloomberg News before an April 28 Commerce Department report. Other data may show business investment remained a pillar of the economic rebound, while home prices fell. Federal Reserve policy makers, when they meet this week, will likely say they'll complete the second round of stimulus worth $600 billion, as scheduled, through the end of June to help sustain the recovery. While companies like General Electric Co and Apple Inc are among those benefiting from gains in spending on equipment and software, households are feeling the pinch of higher food and fuel prices. "The economy has hit a bit of a soft patch," said Ryan Sweet, a senior economist at Moody's Analytics Inc in West Chester, Pennsylvania. "If we continue to get these sharp jumps at the pump, that will be a major hit to consumer sentiment. There is a tipping point for consumers." The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available. Household purchases, which account for about 70 per cent of the world's largest economy, rose at a 2.1 per cent annual pace following a 4 per cent gain in the last three months of 2010, the best performance in four years, according to the survey median. Higher prices for necessities like food and energy may have hurt spending on less essential items. The cost of a gallon of regular gasoline rose 18 per cent in the first three months of the year, according to AAA, the nation's biggest motoring organization. The price has increased another 6 per cent so far this month, reaching $3.85 a gallon April 21, the highest since September 2008. Prices for all goods and services rose last quarter at a 2.4 per cent annual pace, the biggest gain in more than two years, economists forecast the GDP will also show. American manufacturers are faring better than consumers as increasing demand from emerging economies like China supplements gains in business spending.