First-Quarter Growth May Have Reached 5%: U.S. Economy Preview
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April 25 (Bloomberg) -- The U.S. economy may have expanded at a 5 percent annual rate in the first quarter as tax cuts and cheap borrowing costs spurred spending by corporations and consumers, economists forecast the government will say Thursday.
``We are seeing great strength through all of our marketplaces,'' said William Mitchell, chief executive of Arrow Electronics Inc., the world's largest distributor of computer parts, based in Melville, New York, in an interview Friday.
Gross domestic product, the sum of all goods and services produced in the U.S., expanded at a 4.1 percent annual pace in the final three months of 2003 and 8.2 percent in the previous quarter, according to the Commerce Department. The estimate for growth from January through March is based on the median of 68 estimates in a Bloomberg News survey.
Separate reports this week may disclose gains in sales of new and previously owned homes during March and a rise in consumer confidence. The statistics will follow recent data showing increased manufacturing, a pickup of inflation and more job creation. The Federal Reserve meets to consider monetary policy next week.
``The economy is firing on all cylinders,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. UBS economists, who estimated first-quarter growth at a 5 percent annual rate, were the second-best GDP forecasters in 2003, according to a survey by Bloomberg Markets magazine.
Fed Policy
Fed Chairman Alan Greenspan and other central bankers signaled last week that interest rates will have to rise at some point from an almost 46-year low to avoid higher inflation. The policy makers didn't say when they may boost borrowing costs, and none of 75 economists surveyed by Bloomberg project a change at the May 4 meeting.
The Federal Open Market Committee may raise its benchmark overnight bank lending rate, currently at 1 percent, by a quarter percentage point at its Aug. 10 meeting, based on the implied yield on federal funds futures. The rate by year end may be 1.75 percent, investors are betting.
Productivity gains have helped companies keep a lid on labor costs, which account for about two-thirds of the final prices of goods and services.
Greenspan said in congressional testimony last week that ``those costs have yet to post a decisive upturn, and even if they do, the current high level of profit margins suggests that firms may come under competitive pressure to absorb some acceleration of labor costs.''
Labor Costs
The Labor Department may report Thursday a 0.9 percent increase in employment costs for the first quarter, matching the average rise since 1989, according to the median estimate in a Bloomberg survey.
Spending on new equipment by companies, which have posted profit increases, helped spur first-quarter growth. Shipments of non-defense capital goods excluding aircraft, used to calculate the business equipment spending portion of the GDP report, rose 12.3 percent at an annual rate from January through March, the Commerce Department reported Friday. That compares with a 12.2 percent pace in the previous three months.
More than half of the companies in the Standard & Poor's 500 Index reported quarterly results as of Friday, and 78 percent of them said earnings per share increased, according to Thomson Financial.
Tax cuts won by President George W. Bush and made retroactive to January 2003 have boosted the average income tax refund for Americans by almost 8 percent this year. Bush is hoping job creation, the missing link so far in an expansion that began in November 2001, will soon follow the pickup in growth.
In the first quarter, payroll employment increased by an average of 171,000 a month, the best quarterly showing since the second quarter of 2000.
Housing Sales
Massachusetts Senator John Kerry, the Democratic candidate for president in the November elections, has been critical of Bush's economic policies because 1.8 million jobs have been lost since Bush took office in January 2001.
New house sales in March may have increased to a 1.173 million annual rate after February's 1.163 million pace, a survey of economists showed before the Commerce Department's report tomorrow. Home purchases have been bolstered by mortgage rates that have hovered close to a 45-year low.
The average 30-year fixed mortgage rate last month was 5.45 percent, down from 5.64 percent in February. In June last year, the rate fell to 5.21 percent, the lowest since the 1960s. Borrowing costs have since increased almost to 6 percent as yields on long-term debt such as 10-year U.S. Treasury notes have climbed to the highest since October.
Consumer Confidence
The National Association of Realtors may report Tuesday that sales of previously owned homes rose to a 6.2 million annual rate in March from 6.12 million the month before, according to the median forecast in a Bloomberg survey.
Also Tuesday, the Conference Board may report that its index of consumer confidence rose to 88.5 this month from 88.3 in March, the survey of economists showed. Sentiment has been restrained by higher gasoline prices.
``Larger tax refunds and better hiring were not enough to offset the dampening effects of higher gasoline prices and increased fighting in Iraq,'' said Steven Wood, chief economist at Insight Economics in Danville, California. ``Although confidence is sharply higher than it was a year ago, it remains well below the levels of the late 1990s.''
The average price for all grades of gasoline rose to a record $1.85 a gallon last week, according to the Energy Department.
Bloomberg Survey
Date Time Period Indicator BN Survey Prior
04/26 10:00 March New Home Sales 1173,000 1163,000
04/27 10:00 April Confidence-Conf. Board 88.5 88.3
04/27 10:00 March Home Resales 6.2M 6.12M
04/29 8:30 4/27 Continuing Claims 2996K 3019K
04/29 8:30 1Q Employment Cost Index 0.9% 0.7%
04/29 8:30 1Q A GDP Price Deflator 2.0% 1.5%
04/29 8:30 1Q A Gross Domestic Product 5.0% 4.1%
04/29 8:30 4/24 Initial Jobless Claims 343K 353K
04/30 8:30 March Personal Income 0.4% 0.4%
04/30 8:30 March Personal Spending 0.7% 0.2%
04/30 10:00 April Chicago Purchasers 61.0 57.6
04/30 10:00 May P Confidence- U. of MI 94.0 93.2
To contact the reporter on this story:
Vince Golle in Washington, or vgolle@bloomberg.net
To contact the editor for this story:
Kevin Miller, or kmiller@Bloomberg.net
Last Updated: April 25, 2004 08:19 EDT |
