US economy expands in first quarter, as consumers spend more

GDP grew by 3.2 percent in the first quarter, indicating improvement in the US economy. Consumer spending rose by 3.6 percent.

By , Staff writer

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    President Barack Obama makes a statement on the first-quarter economic indicators Friday in the Rose Garden of the White House in Washington. GDP grew by 3.2 percent in the first quarter, and consumer spending rose by 3.6 percent.
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The US economy continued its rebound in the first quarter, helped by stronger consumer spending and improved business investment in computers and software.

The gross domestic product, a measure of the total production of goods and services, grew by 3.2 percent for the first three months of the year, according to an “advance” estimate Friday by the US Bureau of Economic Analysis (BEA). The fourth quarter saw a 5.6 percent pop.

The end of last year was driven by businesses restocking depleted inventories. But now, economists say, the economy is starting to show some gradual signs of sustainable growth.

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The consumer is feeling more confident, buying everything from new cars to appliances and even furniture. In the first quarter, consumer spending rose by 3.6 percent, compared with 1.6 percent in the fourth quarter.

The White House quickly embraced the positive news. President Obama, in a Rose Garden press event, said the first-quarter GDP numbers illustrated the sharp improvement from a year ago, when the economy shrank by a 6.4 percent annual rate.

“After the single biggest economic crisis in our lifetimes, we’re heading in the right direction. We’re moving forward. Our economy is stronger; that economic heartbeat is growing stronger.”

Yet Mr. Obama tempered his enthusiasm by noting that he had just returned from visiting some small towns in the Midwest, where he said people are still trying to recover “from a shock wave” of lost homes, lost businesses, and more than 8 million lost jobs.

“So while today’s GDP report is an important milepost on our road to recovery, it doesn’t mean much to an American who has lost his or her job and can’t find another,” he said.

Although the economic news was better overall, some private economists had expected even better results, with some estimates as high as 4.5 percent.

“It was a bit disappointing,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. “It was really a mixed bag.”

One drag on the economy came from state and local governments, which registered a decrease in spending and investment of 3.8 percent. Beset with falling tax revenues, states and municipalities are furloughing workers, canceling projects, and tightening their belts.

“[That] canceled some of the federal spending going on as part of the stimulus,” says Craig Thomas, senior economist at PNC Financial Services Group in Pittsburgh. “Almost every state has this intractable issue of needing to balance its budget.”

Other drags on the economy: New home building dried up, falling 10.9 percent in the quarter. And commercial construction declined, falling 14 percent from the prior quarter.

Although it was not as pronounced as late last year, the economy continued to benefit from inventory restocking, which added 1.6 percentage points to growth. In fact, some economists worry that once the restocking ends, the economy could sputter.

“Once the warehouses have been refilled, we could see a [rapid] slowdown in growth, which is what I expect to happen in the spring quarter,” writes Joel Naroff of Naroff Economic Advisors in an analysis.

The first-quarter GDP numbers are likely to change, economists caution, when the BEA releases its “second” estimate on May 27.

“I am telling everyone not to get too wedded to these numbers. They will get revised,” Mr. Brown says. “But the general direction is not going to change too much.”

Economists will get more new data on Monday, when the government releases personal-income and spending numbers for March. “We’ll see what kind of momentum we have going into the second quarter,” Brown says.

Then, next Friday, the Labor Department will release the April employment report. In a report to its customers this week, Barclays Capital Research said it expects a gain of 200,000 jobs and a drop in the unemployment rate to 9.6 percent.

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