US Economy Expands 3.2%

The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as consumers stepped up spending, the strongest sign yet a sustainable recovery is taking hold., Reuters 4/30/2010 10:35:21 AM

While growth slowed from the fourth quarter's rapid 5.6 percent pace and was a touch weaker than economists expected, the details of the report from the Commerce Department on Friday were fairly upbeat.

Consumer spending, which normally accounts for about 70 percent of U.S. economic activity, added nearly 2.6 percentage points to U.S. gross domestic product last quarter, the biggest contribution since the fourth quarter of 2006.

The report showed consumer spending rose at a 3.6 percent rate in the January-March period, more than double the 1.6 percent pace in the fourth quarter and the biggest gain since the first quarter of 2007.

Spending added 2.55 percentage points to GDP. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

Business inventories increased $31.1 billion in the first quarter, adding 1.57 percentage points to GDP, as businesses restocked to meet firming demand. It was the first increase in inventories since the first quarter of 2008.

Businesses also continued to spend on software and equipment, though a bit less vigorously than in the prior quarter, boding well for the economic recovery.

Last month the economy enjoyed the strongest jobs growth in three years as private employers stepped up hiring.

New home construction was a drag on growth in the first quarter after two quarters of gains. Residential investment contracted at a 10.9 percent rate.

Business spending on structures subtracted from GDP for a sixth straight quarter.

Export growth slowed sharply to a 5.8 percent pace in the first quarter from a 22.8 percent rate in the prior period, while imports rose at an 8.9 percent rate. That left a trade deficit that chipped off 0.61 percentage point from GDP.

A separate report from the U.S. Labor Department showed employment costs rose 0.6 percent in the first quarter as benefit costs posted their biggest gain since the second quarter of 2002. Wages advanced just 0.4 percent.

Other reports showed business activity in both New York city and Chicago grew in April, providing additional signs the economy's recovery was growing more durable.

The Thomson Reuters/University of Michigan's Surveys of Consumers showed sentiment falling in April from March as consumers saw the recovery as well under way, but slow. However, their view on how the economy will look 12 months from now improved from the prior month.

US Economy Expands 3.2%