U.S. 1st-Quarter Gross Domestic Product Rises at 3.5%
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U.S. 1st-Quarter Gross Domestic Product Rises at 3.5%
May 26 (Bloomberg) -- The U.S. economy expanded at a 3.5 percent annual rate in the first quarter, faster than the government previously estimated, as the trade deficit shrank and consumer spending was stronger than initially calculated.
The second estimate of gross domestic product, the total volume of goods and services produced in the U.S., follows an advance calculation of 3.1 percent reported April 28 and growth of 3.8 percent in the final three months of 2004, the Commerce Department said today in Washington. First-quarter growth exceeds the 10-year average of 3.3 percent.
The figures reinforce the suggestion yesterday from Jack Guynn, president of the Federal Reserve Bank of Atlanta, that the U.S. Fed can keep raising interest rates to control inflation and not derail the expansion. The report may also help quell concern that the world's largest economy is losing momentum because of higher energy prices, economists said.
``Energy prices may have contributed to caution in business spending, but consumer spending is still quite strong and real estate is through the roof,'' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, before the report. ``The economy isn't showing much sign of weakening, and with hindsight this looks like a period of strong and steady growth.''
Inflation accelerated from the fourth quarter, although today's report showed no increase in the previous estimates for the January-March period, and one measure linked to the report fell. Corporate profits grew less than in the fourth quarter. Spending on home construction soared.
Jobless Claims
The median forecast in a Bloomberg News survey of economists called for a revised 3.6 percent pace in the first quarter. Business investment grew less than previously reported, and inventories grew at a slower pace.
Initial claims for unemployment benefits rose to 323,000 last week from 322,000, the Labor Department reported. The level is close to the average of 327,000 for the year and suggests companies are trying to hold on to workers.
The 4 1/8 percent U.S. Treasury note maturing in 2015 gained after the gross domestic product price index was revised to 3.2 percent from 3.3 percent for the quarter. The 3/32 point increase in the price brought the yield down to 4.07 percent from 4.08 percent at 8:37 a.m. in New York.
GDP rose to $11.09 trillion when annualized and adjusted for inflation. Without adjustment, GDP grew at a 6.7 percent annual pace to $12.2 trillion for the quarter compared with 6.2 percent in the previous three months.
Trade Deficit
The trade gap narrowed to $55 billion in March from a record $60.6 billion a month earlier, the Commerce Department said May 11, about two weeks after the initial GDP report. The deficit subtracts from growth because foreign production is meeting domestic demand.
The trade deficit subtracted 0.7 percentage points from first- quarter growth, compared with almost 1.5 percentage points estimated in the government's advance report on GDP April 28.
Consumer spending, which account for more than two-thirds of the economy, expanded at a 3.6 percent annual pace, compared with the earlier estimate of 3.5 percent and a 4.2 percent rise in the fourth quarter. Last year's consumer spending growth of 3.8 percent was the most since 2000.
``When consumers get a little bit antsy, it seems like that happens for a few days or a week, but the consumer is continuing to hold up quite nicely,'' Dave Edmondson, chief executive of RadioShack Corp., the third-biggest U.S. chain of electronics stores, said May 20 in an interview.
Business Investment
Business fixed investment, which includes spending on commercial construction as well as on equipment and software, rose at a 3.5 percent annual rate in the first quarter. That compares with the initial first-quarter estimate of 4.7 percent and a 14.5 percent gain in the fourth quarter.
Spending on equipment and software grew at a 5.6 percent annual rate. The government earlier estimated such spending grew at a 6.9 percent rate, the slowest in two years, after an 18.4 percent gain in the fourth quarter.
Inventories
U.S. durable goods orders rose 1.9 percent last month, the Commerce Department reported yesterday. That suggests business investment is rebounding this quarter.
Demand ``continues at a healthy pace,'' said Jim Woodward, chief financial officer of JLG Industries Inc., the McConnellsburg, Pennsylvania, maker of booms, scissor lifts and aerial work platforms.
Companies boosted inventories at a revised $68.4 billion annual rate, compared with an advance estimate of $80.2 billion and a fourth-quarter increase of $47.2 billion. That contributed 0.8 percentage point to growth, down from the initial estimate of 1.21 percentage points to growth.
Most Fed policy makers viewed a slowdown in economic growth ``as likely to be transitory,'' minutes from the May 3 meeting of the Federal Open Market Committee showed.
Real final sales, or GDP minus inventories, increased at a 2.7 percent annual rate in the first quarter. The earlier estimate was a 1.9 percent annual rate.
Investment in housing accelerated. Residential housing construction rose at an 8.8 percent annual rate in the quarter, the fastest since mid-2004. The initial estimate was 5.7 percent, and it compares with 3.4 percent for the fourth quarter.
Inflation Measures
Some measures of inflation were unrevised. The personal consumption expenditures price index, a measure tied to consumer spending, rose 2.1 percent, slower than the 2.7 percent in the fourth quarter.
Stripping out food and energy, the gauge rose at an unrevised 2.2 percent annual rate. That core measure, which Fed policy makers tend to watch, increased 1.7 percent in the final three months of last year.
The Fed raised its benchmark overnight lending rate a quarter point to 3 percent on May 3, the eighth straight increase of a quarter point in less than a year.
Rates must rise further to keep inflation in check and ensure the Fed doesn't have to take ``a more painful path of steep hikes'' later, the Atlanta Fed's Guynn said this week in a speech to homebuilders.
``Our economy has ample strength to withstand further removal of accommodative monetary policy -- in my view a step that is needed to sustain economic growth,'' Guynn said. He said gross domestic product will grow 3.5 percent to 4 percent this year.
The GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, or profits from current production, rose 4.5 percent, compared with 13.5 percent in the fourth quarter. The fourth-quarter results were distorted by a rebound from the third quarter, when hurricanes caused a decline.
The economy will probably grow at a 3.2 percent rate this quarter, and 3.4 percent this year, according to median estimates in a Bloomberg News survey of economists April 29 to May 6. The economy grew 4.4 percent last year, the most since 1999.
The second estimate of gross domestic product, the total volume of goods and services produced in the U.S., follows an advance calculation of 3.1 percent reported April 28 and growth of 3.8 percent in the final three months of 2004, the Commerce Department said today in Washington. First-quarter growth exceeds the 10-year average of 3.3 percent.
The figures reinforce the suggestion yesterday from Jack Guynn, president of the Federal Reserve Bank of Atlanta, that the U.S. Fed can keep raising interest rates to control inflation and not derail the expansion. The report may also help quell concern that the world's largest economy is losing momentum because of higher energy prices, economists said.
``Energy prices may have contributed to caution in business spending, but consumer spending is still quite strong and real estate is through the roof,'' said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, before the report. ``The economy isn't showing much sign of weakening, and with hindsight this looks like a period of strong and steady growth.''
Inflation accelerated from the fourth quarter, although today's report showed no increase in the previous estimates for the January-March period, and one measure linked to the report fell. Corporate profits grew less than in the fourth quarter. Spending on home construction soared.
Jobless Claims
The median forecast in a Bloomberg News survey of economists called for a revised 3.6 percent pace in the first quarter. Business investment grew less than previously reported, and inventories grew at a slower pace.
Initial claims for unemployment benefits rose to 323,000 last week from 322,000, the Labor Department reported. The level is close to the average of 327,000 for the year and suggests companies are trying to hold on to workers.
The 4 1/8 percent U.S. Treasury note maturing in 2015 gained after the gross domestic product price index was revised to 3.2 percent from 3.3 percent for the quarter. The 3/32 point increase in the price brought the yield down to 4.07 percent from 4.08 percent at 8:37 a.m. in New York.
GDP rose to $11.09 trillion when annualized and adjusted for inflation. Without adjustment, GDP grew at a 6.7 percent annual pace to $12.2 trillion for the quarter compared with 6.2 percent in the previous three months.
Trade Deficit
The trade gap narrowed to $55 billion in March from a record $60.6 billion a month earlier, the Commerce Department said May 11, about two weeks after the initial GDP report. The deficit subtracts from growth because foreign production is meeting domestic demand.
The trade deficit subtracted 0.7 percentage points from first- quarter growth, compared with almost 1.5 percentage points estimated in the government's advance report on GDP April 28.
Consumer spending, which account for more than two-thirds of the economy, expanded at a 3.6 percent annual pace, compared with the earlier estimate of 3.5 percent and a 4.2 percent rise in the fourth quarter. Last year's consumer spending growth of 3.8 percent was the most since 2000.
``When consumers get a little bit antsy, it seems like that happens for a few days or a week, but the consumer is continuing to hold up quite nicely,'' Dave Edmondson, chief executive of RadioShack Corp., the third-biggest U.S. chain of electronics stores, said May 20 in an interview.
Business Investment
Business fixed investment, which includes spending on commercial construction as well as on equipment and software, rose at a 3.5 percent annual rate in the first quarter. That compares with the initial first-quarter estimate of 4.7 percent and a 14.5 percent gain in the fourth quarter.
Spending on equipment and software grew at a 5.6 percent annual rate. The government earlier estimated such spending grew at a 6.9 percent rate, the slowest in two years, after an 18.4 percent gain in the fourth quarter.
Inventories
U.S. durable goods orders rose 1.9 percent last month, the Commerce Department reported yesterday. That suggests business investment is rebounding this quarter.
Demand ``continues at a healthy pace,'' said Jim Woodward, chief financial officer of JLG Industries Inc., the McConnellsburg, Pennsylvania, maker of booms, scissor lifts and aerial work platforms.
Companies boosted inventories at a revised $68.4 billion annual rate, compared with an advance estimate of $80.2 billion and a fourth-quarter increase of $47.2 billion. That contributed 0.8 percentage point to growth, down from the initial estimate of 1.21 percentage points to growth.
Most Fed policy makers viewed a slowdown in economic growth ``as likely to be transitory,'' minutes from the May 3 meeting of the Federal Open Market Committee showed.
Real final sales, or GDP minus inventories, increased at a 2.7 percent annual rate in the first quarter. The earlier estimate was a 1.9 percent annual rate.
Investment in housing accelerated. Residential housing construction rose at an 8.8 percent annual rate in the quarter, the fastest since mid-2004. The initial estimate was 5.7 percent, and it compares with 3.4 percent for the fourth quarter.
Inflation Measures
Some measures of inflation were unrevised. The personal consumption expenditures price index, a measure tied to consumer spending, rose 2.1 percent, slower than the 2.7 percent in the fourth quarter.
Stripping out food and energy, the gauge rose at an unrevised 2.2 percent annual rate. That core measure, which Fed policy makers tend to watch, increased 1.7 percent in the final three months of last year.
The Fed raised its benchmark overnight lending rate a quarter point to 3 percent on May 3, the eighth straight increase of a quarter point in less than a year.
Rates must rise further to keep inflation in check and ensure the Fed doesn't have to take ``a more painful path of steep hikes'' later, the Atlanta Fed's Guynn said this week in a speech to homebuilders.
``Our economy has ample strength to withstand further removal of accommodative monetary policy -- in my view a step that is needed to sustain economic growth,'' Guynn said. He said gross domestic product will grow 3.5 percent to 4 percent this year.
The GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, or profits from current production, rose 4.5 percent, compared with 13.5 percent in the fourth quarter. The fourth-quarter results were distorted by a rebound from the third quarter, when hurricanes caused a decline.
The economy will probably grow at a 3.2 percent rate this quarter, and 3.4 percent this year, according to median estimates in a Bloomberg News survey of economists April 29 to May 6. The economy grew 4.4 percent last year, the most since 1999.
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