Economy in U.S. Probably Expanded as Consumer Spending Picked Up
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Economy in U.S. Expands at 2.2% Annual Rate, Less Than For
The U.S. economy expanded less than
forecast in the first quarter as a smaller contribution from
inventories overshadowed the biggest gain in consumer spending
in more than a year.
Gross domestic product, the value of all goods and services
produced in the U.S., rose at a 2.2 percent annual rate after a
3 percent pace, Commerce Department figures showed yesterday in
Washington. The median projection of economists surveyed by
Bloomberg News called for a 2.5 percent gain. Government
spending fell for a sixth straight quarter.
Job creation and income gains propelled sales at car
dealerships and retailers like Target Corp. (TGT), helping cushion the
U.S. economy from weakness overseas. Further gains in consumer
spending will depend on progress in reducing a jobless rate that
has hovered above 8 percent since early 2009.
“This report came in less than expected but it was hardly
a disaster,” said Joel Naroff, president of Naroff Economic
Advisors Inc. in Holland, Pennsylvania. “Consumers hit the
vehicle showrooms hard and consumption was strong.”
In addition to the 2.9 percent pickup in the rate of
consumer purchases, the economy benefited from the biggest gain
in homebuilding in two years and a jump in auto production. GDP
was restrained by slower growth in business investment in
Stocks rose for a fourth straight day on stronger corporate
earnings. The Standard Poor’s 500 Index climbed 0.2 percent to
1,403.36 at the close of trading in New York. Treasuries were
little changed, with the 10-year note yield at 1.93 percent at
4:34 p.m. in New York.
Another report yesterday showed consumer confidence rose to
the highest in a year in April. The Thomson Reuters/University
of Michigan’s final index of sentiment increased to 76.4 from
76.2 last month. The gauge was projected to hold at the 75.7
level initially reported earlier this month, according to the
median forecast in a Bloomberg News survey of economists.
Consumer spending, which accounts for about 70 percent of
the economy, contributed 2 percentage points to first-quarter
growth, the most since the final three months of 2010. Cars sold
last quarter at the fastest pace in four years, according to
“Auto sales softened at the end of the first quarter, and
this rapid growth rate is unlikely to be repeated in the second
quarter,” Ryan Wang, an economist at HSBC Securities USA Inc.
in New York, said in a research note.
The U.S. is doing better than some other major economies.
The U.K. slipped into its first double-dip recession since the
1970s, figures showed this week. In Japan and Germany, gross
domestic product dropped in the final three months of 2011,
while China, the world’s second-largest economy, is also
“The U.S. is where the strength is,” Sandy Cutler,
chairman and chief executive officer at Eaton Corp. (ETN), said on an
April 23 conference call with analysts.
The Cleveland-based company predicted its U.S. markets,
including electrical, hydraulics, aerospace, truck and
automotive, will rise 9 percent this year, up from an earlier
estimate of 6 percent. For its markets abroad, Eaton reduced its
growth forecast to 2 percent from 4 percent, Cutler said.
The GDP data underscore the view of Federal Reserve
officials who this week said they expect “moderate” growth as
they repeated borrowing costs are likely to stay low at least
through late 2014.
Jobs and the economy are a central theme in political
sparring between President Barack Obama and Republican
challenger Mitt Romney.
Obama’s job approval rating reached 50 percent in a Gallup
Daily tracking poll for April 21-23. The telephone survey of
1,534 adults has a margin of error of plus or minus 3 percentage
points. The 50 percent approval mark is notable because all
incumbent presidents since Dwight Eisenhower at or above the
level at the time of the election were re-elected, according to
A stabilization in housing also aided first-quarter GDP
growth. Residential construction increased at a 19.1 percent
rate, the fastest in almost two years.
A job market that’s improved since the end of 2011 is
underpinning demand. Employers increased payrolls by 635,000
from January through March, the biggest quarterly gain since the
first three months of 2006, data from the Labor Department show.
At the same time, the jobless rate has been above 8 percent for
the past three years.
“People have been spending — whether they continue to
spend is a function of what happens with the labor market,”
said Joseph Lavorgna, chief economist at Deutsche Bank
Securities Inc. in New York.
Americans dipped into savings as they increased their
purchases, yesterday’s data showed. Disposable income after
inflation rose 0.4 percent in the first quarter following a 1.7
percent gain. The saving rate from January through March eased
to 3.9 percent from 4.5 percent.
The drop “raises the question, ‘How long can we continue
to consume by saving less?’” said Mohamed El-Erian, chief
executive officer of Pacific Investment Management Co., the
world’s biggest manager of bond funds.
Yesterday’s University of Michigan report also showed that
Americans were more pessimistic about their finances than in
March. Views on finances weakened across all income groups, with
28 percent saying they were improved, down from 34 percent who
said so last month.
Retail purchases advanced at an average rate of 0.8 percent
in the first quarter, the fastest in a year, as stores offered
discounts and shoppers stocked up early on spring gear. Same-
store sales at Target, the second-largest U.S. discount chain,
and Gap Inc. (GPS), the biggest U.S. apparel chain, beat the average
estimate of analysts.
Connie Zheng, 26, was promoted in January at North of Nine,
a technology public relations agency based in San Francisco. The
promotion came with a raise, allowing her to celebrate with the
purchase of $150 purse and a new Apple Inc. iPad.
The economy “feels much better than a year ago,” Zheng
said. “I was looking for a job in 2009. That was really hard,
looking for a job back then. Since, there’s been a lot more
hiring going on and things generally feel better.”
Unseasonably mild temperatures may have also spurred
spending on everything from homes to restaurant meals. The
January-to-March period was the warmest first quarter on records
going back to 1895, according to the National Oceanic and
Small businesses such as Spreadshirt Inc. are also
benefiting from the pickup in consumption. The print-on-demand
t-shirt company had a 108 percent increase in sales in the first
quarter from a year ago. The company, which is based in Leipzig,
Germany, is opening a factory in Las Vegas and will add 90
employees to its current U.S. staff of 150, according to Vice
President Mark Venezia.
Sales have been “remarkable,” Venezia said. “With this
growth we’re looking at expansion into other countries. We’re
investing in more equipment.”
Business investment cooled. Corporate spending on equipment
and software climbed at a 1.7 percent pace, the weakest in
almost three years, after advancing at a 7.5 percent rate in the
previous quarter. It contributed 0.1 percentage point to growth.
Rising auto and industrial demand will keep factories busy
even as manufacturing, a driver of the economic rebound, cools
to a more sustainable pace, economists said. 3M Co., the maker
of fuel system tune-up kits and Post-it Notes, reported a first-
quarter profit that beat analysts’ estimates.
Texas Instruments (TXN) Inc. this week forecast second-quarter
earnings that may top some analysts’ estimates, and Chief
Executive Officer Rich Templeton in a statement referred to the
“breadth of increased orders across geographical regions and
A smaller boost came from inventories, which contributed
0.6 percentage point to GDP growth after 1.8 percentage points
at the end of 2011. Stockpiles were rebuilt at a $69.5 billion
annual pace, after a fourth-quarter rate of $52.2 billion.
Other areas of the economy that struggled include spending
by state and local governments, which decreased at a 1.2 percent
annual rate, after a 2.2 percent drop. Outlays by federal
agencies declined 5.6 percent. National defense spending slumped
8.1 percent, following a 12.1 percent decrease the prior
A measure of inflation that is tied to consumer spending
and strips out food and energy costs, climbed at a 2.1 percent
annual pace compared with 1.3 percent in the prior quarter. Fed
officials have defined their inflation target as 2 percent a
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To contact the editor responsible for this story:
Christopher Wellisz in Washington at