US GDP grew at a slower rate than expected in the second quarter as the worst housing market since the Great Depression, combined with rising unemployment, undercut the impact of more than $100 billion of government tax rebates to US consumers.

The world’s largest economy grew at a 1.9 per cent annualised rate in the second quarter, compared with a consensus forecast of 2.3 per cent, according to the Commerce Department.

First-quarter GDP grew by 0.9 per cent, slightly below the 1 per cent previously calculated by the department.

The disappointing economic growth figures, combined with gloomy new employment data from the Labour Department, sent the Dow Jones industrial average down 110.16, or 1 per cent, to 11,473.53.

The Labour Department report showed that the number of US workers filing new claims for unemployment benefits jumped to a near five-year high last week, increasing by 185,000 to 3.28 million – the highest level since December 2003.

GDP growth was supported by America's smallest trade deficit in seven years, which shrunk to $395.2 billion. Without the benefit of a smaller deficit, GDP would have contracted by 0.5 per cent.

The Commerce Department data also included revisions to other earlier GDP figures.

These show that in the final three months of 2007, the economy declined by 0.2 per cent, rather than growing by 0.6 per cent as previously reported.

However, this does not mean that the US technically went into recession – typically defined as two consecutive quarters of declining GDP – since economic growth in the three months either side of the fourth quarter was positive.

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