The world’s largest economy probably accelerated in the first quarter as consumer spending grew by the most in two years and U.S. businesses rebuilt inventories, economists said before a report today.
Gross domestic product rose at a 3 percent annualized rate after expanding at a 0.4 percent pace in the final three months of 2012, according to the median forecast of 86 economists surveyed by Bloomberg.
A boost to wealth from rising stock prices and home values helped Americans cushion an increase in the payroll tax that has now begun to pinch. Recent data signal the strength in other parts of the economy may also not be sustained as across-the- board cuts in planned federal spending, together with slower stockpiling, may be restraining investment and employment.
“We had strong growth driven by domestic demand,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “The gain in consumer spending looks pretty impressive, given the tax increase.” At the same time, the first quarter “was misleadingly strong. We’re downshifting.”
The Commerce Department will release the GDP figures at 8:30 a.m. in Washington. Economists’ estimates ranged from growth of 1 percent to 3.8 percent.
Another report at 9:55 a.m. may show the Thomson Reuters/University of Michigan final index of consumer sentiment fell to a four-month low of 73.5 in April from 78.6 in March, according to the median forecast in the Bloomberg survey. The preliminary April reading was 72.3.
The GDP report may show consumer spending, which accounts for about 70 percent of the economy, grew at a 2.8 percent annualized rate, the strongest since the first quarter of 2011, according to the Bloomberg survey median. Purchases advanced at a 1.8 percent pace from October through December.
The lagged effect from a 2 percentage-point jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, may take a toll this quarter. The economy will grow at 1.5 percent pace, before reaccelerating to an average 2.4 percent rate of expansion in the last six months of the year, according to a separate Bloomberg survey.
Federal Reserve policy makers have said they will maintain stimulus until the labor market improves “significantly.” The economy’s inability to sustain faster growth means central bankers will probably affirm a pledge to keep buying bonds when they meet next week.
CSX Corp. (CSX), the largest East Coast rail carrier, is among companies looking ahead to a better second half. Jacksonville, Florida-based CSX reported first-quarter earnings that topped analysts’ estimates.
The key economic indicators “point to slow steady growth in the U.S. economy,” Clarence Gooden, chief commercial officer, said on an April 17 earnings call. “Forward projections show continued slow growth in the near-term, with improved growth rates later in the year.”
One area that has seen sustained gains is demand for automobiles. Cars (SAARTOTL) sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to figures from Ward’s Automotive Group.
“The only negative real headwinds we see are higher taxes and potentially lower government spending,” Kurt McNeil, vice president of U.S. sales and service at Detroit-based General Motors Co. (GM:US), said on an April 2 conference call. “Everything else seems to be pretty positive,” he said, mentioning jobs, housing and stock market performance.
The Standard & Poor’s 500 (SPX) Index has climbed 11.1 percent this year.
The residential real-estate market also remains a bright spot as borrowing costs near a record low help draw buyers. Builders began work on an average 969,000 homes at an annualized rate in the first three months of the year, the most in any quarter since April through June 2008.
Business investment, another contributor to growth, is cooling as the so-called sequestration, or planned federal budget cuts, take hold. Bookings for goods meant to last at least three years slumped in March by the most in seven months, figures showed this week.
Unless demand picks up, companies may see less need for inventory accumulation, which rebounded last quarter after being a drag on growth in the final three months of 2012, economists said.
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