The U.S. economy grew at a 1.8 percent 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 percent 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 percent 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.
“The pace of the recovery will be disappointing but not concerning,” Sean Incremona, a senior economist at 4Cast Inc. in New York, said before the report. “Sustained job growth will put a floor under most things. Consumer spending is looking steady- to-softening, rather than accelerating.”
Projections of 82 economists in the survey ranged from 1.6 percent to 2.6 percent.
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 percent annual pace, down from a 2.7 percent initial estimate and less than the 2.8 percent median forecast in the Bloomberg survey. The 4 percent gain in the fourth quarter was the most since the end of 2006.
Less Spending
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 percent in the fourth quarter, rather than the 1.9 percent gain previously estimated. They rose 0.8 percent in the first three months of the year, less than the 2.9 percent prior calculation.
Today’s report also offered a first look at profits. Earnings were up 1.3 percent from the prior quarter, the smallest gain in more than two years, after rising 2.3 percent in the prior period. They climbed 8.5 percent from the same time last year.
Manufacturing, which accounts for 12 percent of the economy, will likely remain a stalwart of the expansion. Economists have said disruptions in the supply of components will weigh on production temporarily until Japanese factories recover from the fallout of the March disaster.
Growing Exports
Overseas sales will remain a backstop for factories. Dow Chemical, the largest U.S. 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 U.S.,” 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.
More Jobs
Payrolls grew by 244,000 last month, the seventh straight gain and the most since May 2010. Unemployment, which rose to 9 percent in April, is forecast to be about 8.5 percent in the fourth quarter, according to a survey of economists this month by Bloomberg News.
Federal Reserve officials are discussing how quickly to begin tightening policy after completing the purchase of $600 billion in U.S. Treasuries by the end of June. Directors at the Fed’s 12 regional banks saw the recovery developing while noting risks from inflation and slower growth, according to minutes of the board’s April 25 meeting released this week.
“Although the economic recovery was progressing, they were cautious about the economic outlook,” the minutes said.
Fed Chairman Ben S. Bernanke has said in recent speeches the threat from accelerating prices will prove “transitory.”
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
