U.S. Economy Expands

The U.S. economy grew more than previously estimated in the first quarter as Americans bought fewer goods from abroad, helping the trade deficit shrink to a five-year low.

The 0.9 percent gain in gross domestic product from January through March compares with the government's advance estimate of 0.6 percent issued in April, according to revised figures from the Commerce Department today in Washington.

Trade remains the bright spot for an economy that is likely to slow this quarter as surging fuel and food bills and falling home values force consumers to cut back. The shortfall in trade also narrowed as exports, stoked by growth abroad and a weaker dollar, climbed to a record.

A separate report today showed that initial claims for unemployment insurance were higher than economists had forecast last week. First-time claims rose to 372,000 from 368,000 the previous week, the Labor Department reported.

While a recession is often described as consecutive declines in GDP, the National Bureau of Economic Research, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.

The group says that in a recession, decreases would be visible in payrolls, production, sales and incomes, in addition to GDP.

Following a 0.6 percent growth rate in the fourth quarter, the reading was the smallest back-to-back pace of expansion in five years.

The revision last quarter reflected a bigger narrowing of the trade deficit than the government projected on April 30. The gap shrank to an annual pace of $480.2 billion, the smallest since the third quarter of 2002. Trade's contribution to growth jumped to 0.8 percentage point, four times more than previously estimated.

Consumer spending, which accounts for more than two-thirds of the economy, rose at a 1 percent annual rate in the first quarter, the same as estimated last month. The gain was the smallest since the 2001 recession.

The revisions also showed bigger gains in incomes than previously estimated, easing concern that spending will collapse.

Personal income increased at a 5.1 percent annual pace from October through December, compared with an initial projection of 4.2 percent. For the first quarter, income growth was revised up to 4.7 percent from 4.4 percent.

Income growth may slow in coming months as the labor market softens. The U.S. has lost jobs for four consecutive months this year, and payrolls may post another decline for May, according to the Bloomberg survey.

The gain in growth last quarter would have been even larger if not for a reduction in estimates for inventories. Companies cut stockpiles at a $14.4 billion annual rate, compared with an initial estimate of a $1.8 billion gain. The figures added 0.2 percentage point to growth, less than the previously estimated contribution of 0.8 percentage point.

A measure of total sales, which strips out stockpiles, was revised to a gain of 0.7 percent at an annual rate rather than a 0.2 percent drop. Sales rose at a 2.4 percent pace in the fourth quarter.

There are signs that demand is slowing even more. Auto sales in April slid to a 14.4 million annual rate, the lowest level since 1998, industry figures show. Spending this quarter will grow at a 0.5 percent pace, the smallest gain since 1991, according to the median estimate of economists surveyed earlier this month.

Federal Reserve policy makers last month trimmed their economic growth projections for this year by a percentage point to 0.3 percent to 1.2 percent.

Residential construction decreased at a 25.5 percent pace, less than previously estimated. It was still the biggest drop since the last quarter of 1981.

Reports this month showed declines in home building will remain a drag on growth. Builders began work in April on the fewest single-family houses in 17 years, Commerce said earlier this month. Decreases in residential construction have subtracted from growth since the first three months of 2006.

The figures today also included a first look at corp...

U.S. Economy Expands

TradingEconomics.com, Bloomberg
5/29/2008 7:01:51 AM