* First-quarter GDP rises 2.2 percent, slowdown from Q4
* Consumer spending jumps on strong auto sales
* Small boost from inventories, business investment sags
* Business investment drops for first time since Q4 2009
By Lucia Mutikani
WASHINGTON, April 27 (Reuters) – U.S. economic growth cooled
in the first quarter as businesses cut back on investment and
restocked shelves at a slower pace, but stronger demand for
automobiles softened the blow.
Gross domestic product expanded at a 2.2 percent annual
rate, the Commerce Department said on Friday in its advance
estimate, moderating from the fourth quarter’s 3 percent rate.
While that was below economists’ expectations for a 2.5
percent pace, a surge in consumer spending took some of the
sting from the report and growth was still stronger than
analysts’ predictions early in the quarter for an expansion
below 1.5 percent.
“There’s nothing catastrophic happening, this is just slow
growth and this underscores that the economy is on sound footing
but nothing more,” said Steven Baffico, chief executive at Four
Wood Capital Partners in New York.
Futures for the broad-based S&P; stock index pared gains
after the GDP report, while U.S. Treasuries prices turned
positive. The dollar extended losses against the yen and fell
against the euro.
Although the details were mixed, the GDP report offered a
somewhat better picture compared with the fourth quarter, when
inventory building accounted for nearly two thirds of the
economy’s growth. In the first quarter, demand from consumers
took up the slack.
Consumer spending which accounts for about 70 percent of
U.S. economic activity, increased at a 2.9 percent rate – the
fastest pace since the fourth quarter of 2010. That compared to
a 2.1 percent rise in the fourth quarter.
There were other signs of underlying strength, with even
home construction rising at its fastest pace since the second
quarter of 2010, thanks to the unusually warm winter.
But business spending fell for the first time since the
fourth quarter of 2009, with investment in equipment and
software rising at its slowest pace since the recession ended.
“It is disappointing that business investment fell, but that
could prove temporary,” said Mark Zandi, chief economist at
Moody’s Analytics in West Chester, Pennsylvania.
Another drop in government defense spending, which
confounded expectations for a strong rebound, also undermined
growth.
The report will probably not change views on monetary
policy. Federal Reserve Chairman Ben Bernanke on Wednesday
expressed comfort with the current stance of Fed policy, but
held out the prospect of more bond buying if the economy
deteriorated.
The pace of growth remains too soft to offer comfort to
President Barack seeking a second-term in office and not enough
to significantly bring down the unemployment rate.
Americans stepped up spending on automobiles in the first
quarter, with motor vehicle sales rising by the most in four
years. Part of that reflected pent-up demand after last year’s
earthquake and tsunami in Japan disrupted supplies and left
showrooms bereft of popular models.
And encouraged by a spurt in job growth, some households may
have replaced older vehicles after tightening their belts during
the 2007-09 recession.
AUTOS BUOY GROWTH
Motor vehicle output contributed 1.12 percentage points to
first-quarter GDP growth, more than double compared to the prior
quarter.
But with the labor market showing early signs of fatigue
after employment growth averaged 246,000 per month between
December and February, consumer spending could soften in the
second quarter.
Some gauges of regional factory activity eased as the second
quarter started, and consumer confidence ebbed. In addition,
first-time applications for unemployment benefits have spiked in
recent weeks, although many economists pin the rise on seasonal
quirks.
While the unseasonably warm weather helped the economy by
boosting home building and renovations, it undercut demand for
utilities, spending at ski resorts and sales of winter apparel.
As a result, weather was probably not the biggest
contributor to growth during the quarter.
Inventories also helped GDP growth, just not as much as in
the fourth quarter. Inventories increased $69.5 billion after
rising $52.2 billion in the fourth quarter.
The change in inventories contributed just over half a
percentage point to GDP growth compared to 1.81 percentage
points in the fourth quarter.
Excluding inventories, GDP rose at a 1.6 percent rate. In
the fourth quarter, the comparable figure was just 1.1 percent.
A broad rise in inflation pressures as energy prices soared
also contributed to restraining GDP growth. A price index for
personal spending rose at a 2.4 percent rate, accelerating from
the fourth quarter’s 1.2 percent pace.
A core measure that strips out food and energy costs
advanced at a 2.1 percent rate, also quickening from 1.3 percent
in the prior quarter.
With the rise, core PCE has breached the Fed’s 2 percent
inflation target.
An increase in exports was offset by a rise imports, causing
trade to have virtually no impact on growth.
