The U.S. economy probably expanded in the first quarter at the fastest pace in two years, a rate unlikely to be matched in coming months, economists said ahead of a government report to be released today.
Gross domestic product, the value of all goods and services produced in the U.S., probably grew at a 5.6 percent annual rate from January through March, according to the median of 53 forecasts in a Bloomberg News survey. That’s the same as the government estimated on May 24 and more than three times the 1.7 percent growth of the final three months of 2001.
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Growth will cool during the rest of the year because of sluggish business investment and an absence of pent-up consumer demand, economists said. Federal Reserve Chairman Alan Greenspan and fellow central bankers kept the benchmark interest rate at a four-decade low yesterday to ensure the economy doesn’t stall.
“Before it raises interest rates, the Fed has stated it needs to see growth in areas like business investment and domestic demand, and reports such as GDP suggest they’re not seeing either yet,” said Lara Rhame, a currency economist at Brown Brothers Harriman & Co., in New York.
Commerce is scheduled to release its final estimate of first-quarter growth today. The Labor Department is also expected to report that first-time jobless claims fell to 390,000 in the week that ended Saturday from
393,000 a week earlier.
Second Quarter
The economy probably will have slowed to a 2.7 percent rate of growth in the second quarter, which ends this month, according to a separate survey of 55 economists. Gross domestic product probably will increase at a 3.2 percent pace in the third quarter and at a 3.5 percent rate in the fourth. Some say economic growth may be more lackluster than called for in previous forecasts.
“Expectations of an early pickup in business spending and employment proved incorrect,” said Bruce Kasman, senior U.S. economist at J.P. Morgan Chase & Co., in New York.
Cars and trucks sold last month at the slowest pace in four years, as General Motors Corp. and Ford Motor Co. scaled back zero-interest loan offers. At the same time, consumers spent more at discounters such as Costco Wholesale Corp., the biggest operator of warehouse clubs, and less at department stores.
And while orders for factory goods have risen for three of the last four months, companies are meeting demand without investing more in buildings or equipment. Such spending has fallen for six consecutive quarters.
Consumer and corporate optimism is waning in tandem with falling stock prices. Consumer confidence fell the most in June in any month since the terrorist attacks, the Conference Board reported today.
Slower growth has generated concern that corporate profit growth will be sluggish. The result is that the Dow Jones Industrial Average has dropped 9 percent this year and the Standard & Poor’s 500 stock index has declined 15.2 percent.
“Given the ongoing weakness in employment, business investment and equity markets, there will be little or no discussion of rate rises,” for the foreseeable future, said Rory Robertson, an interest-rate strategist at Macquarie Equities.
Bloomberg News
