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Economy Title: Economy in U.S. Expands Less Than First Estimated, Profits Grow May 27 (Bloomberg) -- The U.S. economy grew in the first quarter at a slower pace than previously calculated, reflecting smaller gains in consumer and business spending and highlighting the risks to the recovery posed by the European debt crisis. The 3 percent increase at an annual rate in gross domestic product was less than the median estimate of economists surveyed by Bloomberg News and compares with an advance estimate of 3.2 percent issued last month, figures from the Commerce Department showed today in Washington. Corporate profits grew and incomes were revised down. Households are gaining confidence this quarter as employment improves, and manufacturing is powering ahead as business investment and exports keep growing. The setback in stocks and rebound in the dollar caused by Europe’s financial troubles may cool spending here and abroad, giving the Federal Reserve greater scope to keep interest rates low. “The U.S. economy won’t get away scot-free” from the effects of the debt crisis, Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Nonetheless, we will make our way through and the expansion will remain intact. Job growth is kicking in and businesses are investing more.” GDP was forecast to grow at a 3.4 percent annual pace, according to the median estimate of 79 economists surveyed. Projections ranged from gains of 3 percent to 4.1 percent. Consumer Spending Consumer spending, which accounts for about 70 percent of the economy, rose at a 3.5 percent pace last quarter, compared with the 3.6 percent the government estimated last month and a 1.6 percent gain in the prior three months. The first-quarter increase was the biggest since 2007. Company earnings increased 5.5 percent in the first quarter after climbing 8 percent in the previous three months. Earnings were up 31 percent from the same time last year, the biggest year-over-year gain since 1984, one reason why hiring and spending on capital equipment is improving. Chrysler Group LLC, the automaker controlled by Fiat SpA, posted a $143 million operating profit in its first quarter and said last week that it will add a second shift to a Detroit factory that makes Jeep Grand Cherokees. The company will add 1,100 workers at the assembly plant to increase production of the redesigned sport-utility vehicle, Chief Executive Officer Sergio Marchionne said at a May 21 news conference. He said he expects to add jobs at other Chrysler plants, without specifying which factories. Salaries Fall Today’s report also revised household earnings data covering the past two quarters. Wages and salaries decreased by $13.2 billion in the last three months of 2009, a downward revision of $30.3 billion. The figures, which incorporate new data on bonuses and stock options, indicate employment may have been weaker at the end of last year than current data show. Today’s report also showed that gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating growth, grew at a slower pace than GDP before adjusting for inflation during the past two quarters. According to Fed research, GDI is a better gauge of the economy, signaling growth may be overestimated. Since then, mounting concern over the sovereign-debt crisis in Europe has rattled global financial markets. The Standard & Poor’s 500 Index is down 8.7 percent from March 31 through yesterday, and the dollar index, which tracks the currency’s performance against six major currencies including the euro and yen, is up 7.6 percent. Debt Crisis The drop in stocks will damp household wealth, leading to smaller gains in consumer spending over the next year than would otherwise be the case, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The advance in the dollar will also hurt American exports, he said. “The measurable effects of the recent move in financial conditions have been, on net, negative, but not enough to derail the recovery,” Feroli said in a May 24 note to clients. There are also “less quantifiable effects,” he said, that will bear watching in coming months, including banks’ willingness to lend and an increase in uncertainty that may prove a barrier to further gains in hiring and business investment. Business spending on new equipment and software advanced at a 12.7 percent pace last quarter after advancing at a 19 percent rate the previous three months, the biggest gain since 1998, today’s report showed. Spending on structures, including office buildings and factories, dropped at a 15.3 percent pace in the first quarter. Today’s GDP report is the second for the quarter and will be revised in June as more information becomes available to the government. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.6 percent annual pace, the lowest level since records began in 1959. The reading underscores the Fed’s pledge to keep interest rates near zero in coming months. Post Comment Private Reply Ignore Thread |
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