Economy in U.S. Probably Expanded as Consumer Spending Picked Up

Photographer: Justin Sullivan/Getty Images

A shoe store in New York. Close

A shoe store in New York.

Close
Open
Photographer: Justin Sullivan/Getty Images

A shoe store in New York.

The biggest increase in consumer spending in a year probably helped extend the U.S. economic expansion into the first quarter, economists said before a report today.

Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.5 percent annual rate after a 3 percent gain the prior three months, according to the median forecast of 85 economists surveyed by Bloomberg News. Household purchases, which account for about 70 percent of the economy, advanced by the most since the end of 2010, the survey showed.

Job creation and income gains were enough to propel sales at car dealerships and retailers like Target Corp. (TGT), helping make the U.S. more resilient to weakness in overseas markets. Federal Reserve officials this week said they expect growth to stay “moderate,” helping explain why they adhered to a goal of keeping borrowing costs low through 2014.

“We’re shifting gears right now toward more domestic demand-driven growth,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “Consumer spending is growing and businesses are investing. As long as interest rates stay low, it should lead to a self- reinforcing economic feedback loop.”

Photographer: Andrew Harrer/Bloomberg

A customer pulls a cart of groceries through a BJ's Wholesale Club Inc. store in Falls Church, Virginia. Close

A customer pulls a cart of groceries through a BJ's Wholesale Club Inc. store in Falls Church, Virginia.

Close
Open
Photographer: Andrew Harrer/Bloomberg

A customer pulls a cart of groceries through a BJ's Wholesale Club Inc. store in Falls Church, Virginia.

The Commerce Department will release the first estimate of GDP at 8:30 a.m. in Washington. Economists’ estimates ranged from 1.2 percent to 3.6 percent.

Consumer Sentiment

A separate report at 9:55 a.m. may show the Thomson Reuters/University of Michigan final index of consumer sentiment cooled this month from a one-year high in March, economists in the Bloomberg survey predicted.

Stocks advanced along with the economy in the first quarter. The Standard & Poor’s 500 Index climbed 12 percent, including a 3.1 percent gain in March. That marked the strongest three-month start to a year since a 13.5 percent advance in the first quarter of 1998. Earnings have beaten analysts’ estimates at about 75 percent of the companies in the S&P 500 that released results since April 10, according to data compiled by Bloomberg.

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 Gallup.

The U.S. is outperforming some of the other major economies across the globe. The U.K. economy slipped into its first double-dip recession since the 1970s, figures from London showed this week. In Japan and Germany, gross domestic product dropped in final three months of 2011 at 0.7 percent annual rates.

Faster Spending

Today’s Commerce Department data may also show a 2.3 percent increase in first-quarter household consumption, following a 2.1 percent gain in the prior period, according to the Bloomberg survey median.

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 as more of its customers buy shirts, 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.”

Labor Market

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.

Employment and the accompanying income gains may have alleviated some of the strain from higher fuel prices. The cost of a gallon of gasoline at the pump jumped 65 cents from the beginning of the year to $3.93 on March 31, which was the highest level in 10 months, according to AAA, the largest U.S. auto group.

“The industry and consumers have been very resilient in the face of higher pump prices,” Don Johnson, vice president of U.S. sales at General Motors Co. (GM), said on a call with analysts on April 3. “The steadily improving economy is playing a role and so is pent-up demand and an improved credit market.”

Auto Sales

Cars sold last quarter at the fastest pace in four years, according to industry data.

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.

Unseasonably mild temperatures may have also spurred activity from retail and restaurant sales to homebuilding. The January to March period was the warmest first quarter on records going back to 1895, according to the National Oceanic and Atmospheric Administration.

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 Inc. (TXN) 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 markets.”

European Growth

Sustained domestic demand will help make the U.S. expansion more resilient, cushioning the nation against cooling exports amid Europe’s debt crisis and a slowdown in global growth.

The Federal Open Market Committee “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” it said in an April 25 statement at the conclusion of a two-day meeting in Washington. “The unemployment rate has declined but remains elevated.”

A stabilization in housing, which “remains depressed” according to the Fed’s statement this week, may have also aided first-quarter GDP, today’s report may show.

                        Bloomberg Survey

==============================================================
                               GDP Personal      GDP Core PCE
                            Annual Consump.   Prices   Prices
                              QOQ%     QOQ%     QOQ%     QOQ%
==============================================================

Date of Release              04/27    04/27    04/27    04/27
Observation Period            1Q A     1Q A     1Q A     1Q A
--------------------------------------------------------------
Median                        2.5%     2.3%     2.1%     2.1%
Average                       2.5%     2.3%     2.0%     2.1%
High Forecast                 3.6%     2.6%     2.8%     2.4%
Low Forecast                  1.2%     1.8%     1.0%     2.0%
Number of Participants          85       31       38       20
Previous                      3.0%     2.1%     0.9%     1.3%
--------------------------------------------------------------
4CAST                         2.3%     ---      2.2%     2.1%
ABN Amro                      2.6%     ---      ---      ---
Action Economics              2.5%     ---      2.2%     ---
Aletti Gestielle              2.6%     ---      ---      ---
Ameriprise Financial          2.7%     2.4%     ---      ---
Banca Aletti                  2.7%     2.5%     2.2%     2.0%
Bank of Tokyo-Mitsubishi      2.8%     2.5%     ---      ---
Bantleon Bank AG              2.4%     ---      ---      ---
Barclays Capital              2.5%     2.2%     2.4%     ---
Bayerische Landesbank         2.3%     2.3%     2.2%     ---
BBVA                          2.4%     2.3%     2.2%     2.1%
BMO Capital Markets           2.2%     ---      1.7%     ---
BNP Paribas                   2.2%     2.0%     2.5%     2.2%
BofA Merrill Lynch            2.3%     ---      1.8%     2.2%
Briefing.com                  2.6%     ---      2.0%     ---
Capital Economics             2.5%     ---      ---      ---
CIBC World Markets            2.6%     ---      2.2%     ---
Citi                          2.6%     2.4%     1.0%     ---
ClearView Economics           3.6%     ---      ---      2.1%
Comerica                      2.2%     ---      1.6%     ---
Commerzbank AG                2.7%     ---      ---      ---
Credit Agricole CIB           2.7%     2.3%     1.9%     ---
Credit Suisse                 2.8%     2.2%     2.6%     2.4%
Daiwa Securities America      2.8%     ---      ---      ---
Danske Bank                   2.5%     2.1%     ---      ---
DekaBank                      2.9%     ---      2.5%     ---
Desjardins Group              1.9%     ---      ---      ---
Deutsche Bank Securities      2.8%     ---      2.2%     ---
Deutsche Postbank AG          2.8%     ---      ---      ---
DZ Bank                       2.0%     ---      1.8%     ---
Exane                         2.4%     ---      ---      ---
Fact & Opinion Economics      2.8%     ---      ---      ---
First Trust Advisors          3.0%     2.2%     2.0%     ---
FTN Financial                 1.8%     ---      ---      ---
Goldman, Sachs & Co.          2.7%     ---      ---      ---
Helaba                        2.3%     ---      ---      ---
High Frequency Economics      2.7%     2.2%     1.7%     2.0%
HSBC Markets                  2.6%     2.4%     ---      2.2%
Hugh Johnson Advisors         2.2%     ---      1.0%     ---
IDEAglobal                    2.5%     1.8%     2.1%     2.0%
IHS Global Insight            2.7%     ---      ---      ---
Informa Global Markets        2.7%     2.4%     1.8%     ---
ING Financial Markets         2.0%     1.8%     ---      ---
Insight Economics             2.3%     ---      1.8%     ---
Intesa Sanpaulo               2.5%     ---      ---      ---
J.P. Morgan Chase             2.9%     2.4%     1.8%     2.1%
Janney Montgomery Scott       2.1%     2.4%     2.8%     2.0%
Jefferies & Co.               2.8%     ---      2.2%     2.1%
Landesbank Berlin             2.3%     ---      ---      ---
Landesbank BW                 3.0%     ---      ---      ---
Maria Fiorini Ramirez         2.5%     ---      2.1%     ---
Market Securities             2.4%     2.3%     ---      ---
MET Capital Advisors          2.0%     ---      ---      ---
Mizuho Securities             2.5%     ---      ---      ---
Moody’s Analytics             2.7%     ---      ---      ---
Morgan Stanley & Co.          2.7%     2.1%     1.8%     ---
National Bank Financial       2.6%     ---      ---      ---
Natixis                       2.6%     2.5%     ---      2.0%
Newedge                       2.3%     2.2%     ---      ---
Nomura Securities             2.8%     ---      ---      ---
Nord/LB                       2.6%     ---      ---      ---
OSK Group/DMG                 2.2%     2.3%     2.0%     2.1%
O’Sullivan                    2.8%     ---      ---      ---
Parthenon Group               3.0%     ---      ---      ---
Pierpont Securities           2.5%     2.2%     1.8%     2.1%
PineBridge Investments        2.5%     ---      ---      ---
PNC Bank                      2.3%     ---      2.1%     ---
Raiffeisenbank International  2.0%     ---      2.3%     2.1%
Raymond James                 2.6%     ---      ---      ---
RBC Capital Markets           2.0%     2.0%     ---      ---
RBS Securities                2.8%     ---      1.8%     2.1%
Scotia Capital                2.4%     ---      ---      ---
SMBC Nikko Securities         2.7%     2.6%     1.6%     ---
Societe Generale              1.8%     2.2%     2.2%     2.1%
Standard Chartered            1.2%     2.4%     ---      ---
Stone & McCarthy Research     2.8%     ---      2.2%     ---
TD Securities                 2.7%     2.3%     ---      ---
UBS                           2.5%     2.3%     2.2%     2.1%
UniCredit Research            2.5%     ---      ---      ---
Union Investment              2.7%     ---      ---      ---
University of Maryland        2.2%     ---      ---      ---
Wells Fargo & Co.             3.2%     ---      ---      ---
WestLB AG                     2.3%     ---      ---      ---
Westpac Banking Co.           2.0%     ---      ---      ---
Wrightson ICAP                2.3%     ---      ---      ---
==============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.