Economy in U.S. Probably Grew as Consumer Spending Accelerated

Economy in U.S. Probably Grew as Consumer Spending Accelerated

April 30 (Bloomberg) -- The U.S. economy probably expanded in the first quarter, capping the biggest six-month gain since 2003, as consumers spent more freely, economists said before a government report today.

Gross domestic product grew at a 3.3 percent annual pace from January through March, according to the median estimate of 85 economists surveyed by Bloomberg News. Household purchases may have climbed by the most in three years.

Consumers may play a more active role in the recovery, increasing the likelihood the rebound will be sustained, as growing sales at companies from General Electric Co. to Caterpillar Inc. promote hiring. The report may also show prices increased at the slowest pace on record, highlighting why Federal Reserve policy makers are pledging to keep interest rates low.

“The economy is still on a moderate-recovery track, and inflation pressures are easing,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The economy gained momentum as the first quarter progressed, so the second quarter should see stronger growth.”

The Commerce Department’s report on economic growth is due at 8:30 a.m. in Washington. Bloomberg survey estimates spanned from 1.8 percent to 4.5 percent.

Following a 5.6 percent pace of growth in the last three months of 2009, the back-to-back readings mark the strongest performance since the last half of 2003.

Spending Pickup

Consumer spending, which accounts for about 70 percent of the economy, probably rose at a 3.3 percent annual rate last quarter, the fastest pace since the first three months of 2007, the report may also show.

Fed policy makers this week acknowledged the improvement, saying household spending had “picked up recently,” according to their April 28 statement announcing the benchmark interest rate would remain near zero.

Today’s GDP report may also show the Fed’s preferred inflation gauge, which is tied to consumer spending and strips out food and fuel costs, climbed at a 0.5 percent annual rate at the start of the year, according to the survey median. The gain would be the smallest since record-keeping began in 1959.

“Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” policy makers said in this week’s statement.

Labor Costs

Another report today may show labor costs are contained. The employment cost index rose 0.5 percent in the first quarter after increasing 0.4 percent in the prior three months, the survey showed before Labor Department figures at 8:30 a.m. Expenses were up 1.5 percent in the 12 months through December, matching the smallest increase since records began in 2001.

Also today, figures from Reuters/University of Michigan may show measures of consumer confidence diverged this month. The group’s sentiment gauge probably fell to 71 from 73.6 in March, according to a survey median. A similar report this week from the Conference Board, a New York research group, showed confidence climbed to the highest level since September 2008.

An improving job market is one reason why households are more willing to spend. Payrolls probably rose again in April following a 162,000 gain in March that was the biggest in three years, according to the median estimate of economists surveyed before the Labor Department’s monthly employment report on May 7. The jobless rate was at 9.7 percent for a fourth month, the survey also showed.

Stocks Rise

Stocks gained in the first quarter of the year on mounting signs the economic recovery was taking hold. The Standard & Poor’s 500 Index climbed 4.9 percent from January through March, and has increased 3.2 percent in April.

Caterpillar, the world’s largest maker of construction equipment, had its first earnings increase in seven quarters as demand rose, and said it will bring back at least 9,000 jobs this year of the 19,000 it cut globally in 2009. The Peoria, Illinois-based company has added about 1,500 workers since year- end because of higher production, including 600 in the U.S.

Business investment rather than consumer spending will drive the U.S. economic recovery as profits climb, GE’s Chief Executive Officer Jeffrey Immelt said this week.

“The clouds are breaking and the forecast ahead of us is promising,” Immelt told shareholders at an April 28 meeting in Houston. The company sees growth coming from emerging markets such as China, where it garnered $6 billion in sales last year, including about 40 percent from goods exported from the U.S. Immelt said he plans to hire more workers in the U.S. this year.

source: bloomberg.com