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By Shobhana Chandra
July 27 (Bloomberg) -- The U.S. economy probably grew last quarter at the fastest pace in more than a year as manufacturing rebounded and exports improved, economists said before a government report today.
The 3.2 percent annual pace of growth for gross domestic product is the median estimate of 85 economists surveyed by Bloomberg News. The growth rate would follow a 0.7 percent gain in the first quarter that was the weakest since 2002.
Factories ramped up to rebuild inventories and fill orders from Europe and Asia, overcoming a drop in homebuilding and slower consumer spending. The report may also show price pressures cooled, providing some comfort to Federal Reserve policy makers who consider inflation their predominant concern.
``The picture is playing out roughly as the Fed had planned,'' said David Sloan, senior economist at 4Cast Inc. in New York. ``Growth looked very strong last quarter'' and ``inflation is coming down.''
The Commerce Department is scheduled to release the GDP report at 8:30 a.m. in Washington. Estimates in the survey ranged from 2.2 percent to 4.1 percent.
A separate report at 10 a.m. may show Americans' confidence improved in July as gains in employment offset near-record gasoline prices and falling home values. The Reuters/University of Michigan's final reading on sentiment probably increased to 91.2 from 85.3 in June, based on the Bloomberg survey median.
The GDP estimate, the first for the quarter, will be revised in August and September as more information becomes available.
Less Inflation
Price pressures dissipated. The Fed's preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, probably rose at a 1.4 percent annual pace, the smallest gain since the second quarter of 2003, according to the survey median.
``Core inflation will keep on moderating'' because the economy won't be able to sustain last quarter's growth rate, said Rajeev Dhawan, director of Georgia State University's Economic Forecasting Center in Atlanta. Still, ``the Fed has to watch out for it.''
The economy got a boost from stronger business investment on new plants and equipment. A Commerce Department report yesterday cast some doubt on the strength of the improvement. Orders for durable goods excluding transportation equipment unexpectedly fell in June.
Some manufacturers are benefiting from growing overseas demand. Eaton Corp., the world's second-largest maker of hydraulic equipment, last week increased its annual profit forecast.
`Real Strength'
``While the consumer side is a little weaker, there's real strength in the manufacturing side,'' Alexander Cutler, Eaton's chief executive officer, said in a July 16 interview. ``The lower value of the dollar means it's a great time to export from the U.S.''
A smaller trade deficit probably added almost a full percentage point to growth last quarter, after subtracting from the economy in the previous three months, said economists at Lehman Brothers Holdings Inc. in New York.
American consumers, who kept the economic expansion alive in the first three months of the year, were a weak spot last quarter. Consumer spending, which accounts for about 70 percent of the economy, slowed to a 1.5 percent annual pace after rising 4.2 percent from January through March, according to the median estimate of economists surveyed.
The slowdown in consumer spending makes it more likely that the second quarter will prove to be the strongest of the year, economists said.
Housing Rebound Unlikely
Most economists have also ruled out a rebound in housing this year as subprime mortgage defaults and foreclosures mount and home sales drop. New-home purchases last month fell 6.6 percent, the most since January, Commerce reported yesterday.
``Most housing indicators have deteriorated in recent months, which points to a potential 'double dip' in the contribution of residential investment to GDP growth,'' said Jan Hatzius, chief U.S. economist at Goldman, Sachs & Co. in New York.
Residential investment probably fell 10 percent last quarter, according to a forecast by Lehman economists.
The Fed last week trimmed growth forecasts for this year because of the lingering slump in housing. The economy will grow by 2.25 percent to 2.5 percent in the fourth quarter of 2007 from a year before, compared with a range of 2.5 percent to 3 percent given in February, the Fed said.
``The ongoing correction in the housing market seems likely to continue to weigh on the rate of economic expansion over the near term,'' Fed Chairman Ben S. Bernanke said in testimony before Congress last week. ``But as that process runs its course, the rate of economic activity should move up somewhat.''
The Commerce Department will also issue revisions to GDP figures going as far back as the first quarter of 2004. The updates reflect more complete information derived from business surveys and data from the Internal Revenue Service.
Bloomberg Survey
FIRM GDP GDP GDP
PCE Price Idx
-----------------------------------------------------
Number of replies 85 16 54
MEDIAN 3.2% 1.5% 3.4%
AVERAGE 3.2% 1.6% 3.3%
High Forecast 4.1% 2.6% 4.5%
Low Forecast 2.2% 1.1% 2.0%
Previous 0.7% 4.2% 4.2%
-----------------------------------------------------
4CAST Ltd. 3.7% n/a 2.4%
Action Economics 3.4% n/a 2.1%
AIG Global Invest. 3.2% n/a n/a
Alleti Gestielle SGR 2.8% 1.2% 3.6%
Allianz Dresdner 3.2% n/a n/a
Argus Research 3.0% n/a 3.4%
BBVA 3.3% n/a 3.4%
BMO Capital Markets 2.9% n/a 3.4%
BNP Paribas 3.0% n/a 3.6%
B of A Securities 3.2% n/a 3.1%
Banca IMI 2.9% 1.6% 3.0%
Bancolombia SA 3.0% n/a n/a
Bantleon Bank AG 3.0% n/a n/a
Barclays Capital 3.0% n/a 3.1%
Bear Stearns 3.1% n/a 2.3%
BOT- Mitsubishi 3.4% n/a 3.4%
Briefing.com 3.5% n/a 3.6%
Calyon 3.1% n/a 3.3%
CFC Group 2.8% 1.5% n/a
CIBC World Markets 3.0% n/a 3.3%
Citigroup 3.5% n/a 2.5%
ClearView Economics 3.5% n/a 3.4%
Commerzbank 3.3% 1.5% 3.6%
Countrywide SEC 2.8% 1.5% n/a
Credit Suisse 3.9% n/a 3.2%
Daiwa Securities 3.2% n/a 2.0%
Danske Bank 3.5% n/a n/a
DekaBank 3.6% 1.3% n/a
Desjardins Group 3.2% n/a 4.0%
Deutsche Bank 3.0% n/a 3.0%
Deutsche PostBank 3.6% n/a n/a
Dresdner Kleinwort 3.0% n/a 3.6%
DZ Bank 2.7% n/a 3.4%
Exane 3.4% n/a n/a
FIMAT-Cube 2.7% n/a n/a
First Trust Advisors 3.4% n/a 3.7%
Fortis 3.9% n/a n/a
Global Insight 3.6% n/a n/a
Goldman Sachs 3.4% n/a 2.6%
H&R Block Financial 3.0% 2.0% 3.3%
High Frequency 3.0% n/a n/a
HBOS Treasury 3.3% 1.1% 3.0%
HSBC Markets 3.1% n/a n/a
HSH Nordbank AG 3.2% n/a n/a
Horizon Investments 3.3% n/a n/a
IDEAglobal 3.3% 2.0% 3.2%
ING Barings 2.5% n/a n/a
Informa Global 3.3% n/a 3.3%
Insight Economics 3.2% n/a 4.0%
Intesa-SanPaulo 3.2% n/a 3.6%
IXIS-CIB 3.3% n/a n/a
J.P. Morgan Chase 3.5% n/a 3.2%
JPMorgan Private 3.0% n/a 3.5%
Janney Montgomery 3.5% n/a 3.1%
Landesbank Berlin 2.2% n/a n/a
Lehman 3.3% n/a 3.6%
Lloyds TSB 3.5% 2.2% 3.8%
Maria Fiorini 3.0% n/a 4.0%
Merrill Lynch 3.5% n/a 3.2%
MFC Global Invest. 2.8% 2.6% 3.4%
Mizuho Securities 2.9% n/a 4.5%
Moody's Economy.com 3.5% n/a n/a
Morgan Keegan 3.3% n/a 2.7%
Morgan Stanley 3.6% n/a n/a
National Bank Fin. 3.1% 1.9% n/a
National City Bank 3.6% 1.2% 3.5%
Natixis 3.3% n/a 3.9%
Nomura 2.9% n/a 3.3%
Nord/LB 2.8% n/a 3.7%
PNC Bank 3.5% 1.5% 4.0%
Putnam 4.1% n/a 3.9%
RBS Greenwich Cap. 3.9% n/a 2.4%
Ried, Thunberg 3.5% n/a n/a
Scotia Capital 3.0% n/a n/a
Societe Generale 3.2% 1.7% 3.4%
Stone & McCarthy 3.0% n/a 3.6%
TD Securities 3.3% n/a n/a
Thomson/IFR 3.3% n/a 3.3%
UBS Securities LLC 3.8% 1.2% 3.2%
Unicredit- UBM 3.7% n/a n/a
Univ. of MD 2.8% n/a 2.3%
Wachovia 3.5% n/a n/a
WestLB AG 3.0% n/a n/a
Westpac Banking 3.5% n/a n/a
Wrightson 3.2% n/a n/a
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: July 27, 2007 00:06 EDT
