The US economy grew at a 1.8 per cent annual rate in the first quarter, less than forecast, reflecting a smaller gain in consumer spending than previously calculated.
The revised rise in gross domestic product was the same as estimated last month and compared with a 3.1 per cent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 2.2 per cent increase.
Consumer purchases fell short of forecasts, reflecting a smaller rise in spending on autos and utilities, and the revisions cut the fourth-quarter gain in wages by $24.6 billion, almost half, indicating a bleaker outlook for the biggest part of the economy. Even so, growing employment and exports may benefit manufacturers like Dow Chemical Co. (DOW) and sustain the expansion.
“Consumer spending was pretty anemic last quarter, and households are likely to be somewhat restrained going forward,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast GDP would be revised to 1.9 per cent. “One of the few things that remains strong is manufacturing, helped by the replacement cycle and foreign demand. Economic growth will run a little faster than the first quarter but nothing blockbuster.”
More Americans unexpectedly filed applications for unemployment benefits last week, a sign the labor market is struggling to gain momentum, another report showed today. Jobless claims increased by 10,000 to 424,000 in the week ended May 21, according to data from the Labor Department.
Stock-index futures dropped after the reports, erasing earlier gains, and Treasury securities rose. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.1 per cent to 1,317.5 at 8:51 am in New York, after having been up as much as 0.5 per cent earlier. The yield on the benchmark 10-year note, with moves inversely to its price, decreased to 3.12 per cent from 3.13 per cent late yesterday.
GDP projections of 82 economists in the survey ranged from 1.6 per cent to 2.6 per cent.
The GDP estimate is the second of three for the quarter, with the final release scheduled for June, when more information becomes available.
Today’s report showed consumer spending rose at a 2.2 per cent annual pace, down from a 2.7 per cent initial estimate and less than the 2.8 per cent median forecast in the Bloomberg survey. The 4 per cent gain in the fourth quarter was the most since the end of 2006.
The smaller increase reflected less spending on autos and utilities. Wages and salaries climbed by $27.9 billion from October through December, down from a prior estimate of $52.5 billion. Real disposable income, or after-tax earnings adjusted for inflation, climbed 1.1 per cent in the fourth quarter, rather than the 1.9 per cent gain previously estimated. They rose 0.8 per cent in the first three months of the year, less than the 2.9 per cent prior calculation.
The smaller gain in pay dwarfed the slowdown in spending, pushing the savings rate down to 5.1 per cent in the first quarter from a prior estimate of 5.6 per cent. Today’s report also offered a first look at profits. Earnings were up 1.3 per cent from the prior quarter, the smallest gain in more than two years, after rising 2.3 per cent in the prior period. They climbed 8.5 per cent from the same time last year.
Manufacturing, which accounts for 12 per cent of the economy, will likely remain a stalwart of the expansion. Economists have said disruptions in the supply of components will weigh on production.
Growing Exports
Overseas sales will remain a backstop for factories. Dow Chemical, the largest US chemical maker, said demand is “strong” in Latin America, Asia and northern and eastern Europe, though it is facing “headwinds” this quarter including adverse weather that probably eroded sales of agriculture products and house paint.
“Demand is still on a steady recovery in the US,” Chief Financial Officer William H Weideman said May 24 on a webcast presentation. “We are seeing improvements in the business environment, consumer spending and early signs of job creation. Loosening credit conditions and firming exports are also positive signs.”
Weideman said sales to carmakers have been hurt by the parts shortage related to Japan. Midland, Michigan-based Dow supplies plastics, wire coatings and foams to the auto industry.
