Growth Probably Picked Up in First Quarter: U.S. Economy Preview

Photographer: Victor J. Blue/Bloomberg

The GDP report may show consumer spending, which accounts for about 70 percent of the economy, grew at a 2.8 percent annual rate, the strongest since the first quarter of 2011. Close

The GDP report may show consumer spending, which accounts for about 70 percent of the... Read More

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Photographer: Victor J. Blue/Bloomberg

The GDP report may show consumer spending, which accounts for about 70 percent of the economy, grew at a 2.8 percent annual rate, the strongest since the first quarter of 2011.

The biggest gain in U.S. consumer spending in two years probably helped the world’s largest economy accelerate in the first quarter and housing made further progress, economists said reports this week will show.

Gross domestic product rose at a 3.1 percent annual rate after expanding at a 0.4 percent pace in the final three months of 2012, according to the median forecast of 67 economists surveyed by Bloomberg ahead of Commerce Department data due April 26. Sales of new and previously owned houses climbed, other reports may show.

The expansion picked up as rising stock prices and home values boosted household wealth, helping Americans weather an increase in the payroll tax. Recent data indicate the strength may not be sustained as the reduction in take-home pay begins to pinch and across-the-board cuts in planned federal spending start to weigh on the job market and corporate investment.

“It was a catch-up after a very weak quarter,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. Now, “momentum is slowing.”

The GDP report may show consumer spending, which accounts for about 70 percent of the economy, grew at a 2.8 percent annual rate, the strongest since the first quarter of 2011, according to the Bloomberg survey median. Purchases advanced at a 1.8 percent rate from October through December.

The lagged effect from a 2 percentage-point increase in the payroll tax at the start of the year may take a toll this quarter, economists said. The economy will cool to a 1.5 percent pace, before accelerating to an average 2.4 percent rate in the last six months of 2013, a separate Bloomberg survey showed.

Auto Sales

Automobile purchases remain a bright spot. Cars 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), 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 9 percent this year.

The real-estate market continues to improve as borrowing costs near a record low help buyers, figures from the National Association of Realtors in Washington may show tomorrow.

Home Purchases

Purchases of previously owned homes rose for a third month in March, increasing 0.4 percent to a 5 million annualized rate, the highest level since late 2009, according to the Bloomberg survey median. The last time sales exceeded a 5 million pace was November 2009, when first-time homebuyers rushed to take advantage of a temporary tax credit.

New home sales, due from the Commerce Department on April 23, climbed 1.2 percent to a 416,000 annual pace, the median forecast in the Bloomberg survey shows.

Business investment, another contributor to growth, is poised to cool as the so-called sequestration, or $85 billion in automatic budget cuts that started on March 1, take hold.

Bookings for goods meant to last at least three years fell 3 percent in March after a 5.6 percent jump in February that was the biggest since September, according to the Bloomberg survey. Still, orders for non-defense capital goods excluding aircraft - - a proxy for future business investment in items like computers and engines -- rose 0.3 percent, economists projected. The Commerce Department figures are due April 24.

Railroads Improve

CSX Corp. (CSX), the largest East Coast rail carrier, on April 16 reported first-quarter earnings that topped analysts’ estimates.

The economy “is still gradually recovering,” said Michael Ward, chief executive officer of the Jacksonville, Florida-based company, said in a statement. “At the same time, we are prepared for the economy to accelerate and have great confidence in the long-term outlook for the business.”

Rounding out the week, a report on April 26 may show the Thomson Reuters/University of Michigan final index of consumer sentiment declined to a five-month low of 73.5 in April from 78.6 a month earlier, according to the median forecast. The preliminary April reading was 72.3.

                         Bloomberg Survey
===============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
Exist Homes Mlns          4/22     March      4.98      5.00
Exist Homes MOM%          4/22     March      0.8%      0.4%
New Home Sales ,000’s     4/23     March      411       416
Durables Orders MOM%      4/24     March      5.6%     -3.0%
Durables Ex-Trans MOM%    4/24     March     -0.7%      0.5%
Cap Goods Core MOM%       4/24     March     -3.2%      0.3%
Cap Goods Core Ship MOM   4/24     March      1.9%      0.6%
Initial Claims ,000’s     4/25     20-Apr     352       350
GDP Annual QOQ%           4/26      1Q A      0.4%      3.1%
Personal Consump. QOQ%    4/26      1Q A      1.8%      2.8%
GDP Prices QOQ%           4/26      1Q A      1.0%      1.4%
Core PCE Prices QOQ%      4/26      1Q A      1.0%      1.1%
U of Mich Conf. Index     4/26    April F     72.3      73.5
==============================================================

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

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