US economic growth likely cooled modestly in the first quarter as replenishing of inventories by businesses slowed, though stronger demand for automobiles and a lift to homebuilding from warm weather blunted the blow.
Gross domestic product is expected to have expanded at a 2.5% annual rate, according to the median of a Reuters poll.
That would be a moderation from the fourth quarter's 3.0% pace, but decidedly stronger than economists' predictions early in the quarter for growth below the 1.5% level.
In some ways Friday's report on GDP should stack up well when compared with data for the fourth quarter. In the final three months of last year, inventory building accounted for nearly two thirds of the economy's growth; in the first quarter, demand from businesses and consumers is expected to have taken up the slack.
"The main growth driver was consumer spending, which we expect increased at the fastest since late 2010 as car sales went through the roof," said Harm Bandholz, chief US economist at UniCredit Research in New York.
The Commerce Department will release its first snapshot of first-quarter GDP on Friday at 8:30 a.m.
Details of the report are expected to offer a picture of underlying strength, with even home construction poised to rise at its fastest pace since the second quarter of 2010 thanks to the unusually warm winter.
Such growth could further reduce the odds of a third round of bond purchases by the Federal Reserve to lift the economy. Fed 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.
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.
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.
Slower growth seen for second quarter
"We are going to see growth slow this quarter, reflecting the weather-related pay back," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "We are also going to see manufacturing shifting to a lower gear because of the recession in Europe, which will hurt US exports."
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 probably also helped GDP growth, just not nearly as much as in the fourth quarter. Inventories, however, are a bit of a wild card because the government only has data for January and February.
Excluding inventories, GDP is expected to have risen at a rate of about 2.2%, which would signal firming demand. In the fourth quarter, the comparable figure was just 1.1%.
Should first-quarter growth meet expectations, that could help to explain the solid job gains seen in the first two months of the year, even if the quarter ended on a soft note.
US employers added 275,000 workers to their payrolls in January and 240,000 in February, but only 120,000 in March.
Growth probably benefited from a general lack of inflation pressures, even though gasoline prices soared.
"Overall prices for the entire economy seem to be moderating a little relative to what we saw last year in the first quarter and that will boost economic growth after you adjust for inflation," said Anthony Chan, chief economist at JPMorgan Private Wealth Management in New York.
Elsewhere, growth in the first quarter was likely supported by a rebound in government defense spending. Business spending on equipment and software is expected to have increased for an 11th straight quarter.
Economists expect trade will be a minor drag on first-quarter growth.
