Economic growth stalled in the first quarter after a very cold and
disruptive winter, but the data so far point to a strong
"The weakness in growth we saw in the first quarter is not
indicative of what is going on in the economy. The fundamentals
continue to look pretty good, the economy has momentum," said Gus
Faucher, senior economist at PNC Financial Services Group.
Consumer spending increased 0.9 percent in March after rising by 0.5
percent in February, the Commerce Department said. March's gain was
the biggest since August 2009 and beat economists' expectations for
a 0.6 percent rise.
Consumer spending accounts for more than two-thirds of U.S. economic
activity. When adjusted for inflation, it increased 0.7 percent in
March after advancing 0.4 percent in February.
That was also the largest gain since August 2009 and put consumer
spending on a strong upward trajectory heading into the second
In an early sign of growing consumer spending, four of the top six
automakers, including Chrysler Group LLC, Toyota Motor Corp and
Nissan Motor Co, reported year-to-year gains in sales on Thursday.
"It provides a very strong hand-off to second-quarter spending and
also reinforces our expectation for a 3.5 percent or better
second-quarter growth performance," said Millan Mulraine, deputy
chief economist at TD Securities in New York.
In a separate report, the Institute for Supply Management said its
index of national factory activity rose to 54.9 last month, up from
53.7 in March. A reading above 50 indicates expansion in the
Manufacturing activity has now accelerated for three consecutive
months and last month's gains were driven by a pickup in employment,
export orders and inventories. New orders, however, were unchanged.
Data so far, including employment and industrial production, suggest
there was momentum in the economy at the tail end of a difficult
first quarter, providing a springboard for faster growth in the
The economy grew at an annual rate of only 0.1 percent in the first
three months of the year. Economists and Federal Reserve officials,
however, pinned the slowdown on the impact of a brutal winter. A
moderation in the pace of restocking by businesses, which is likely
temporary, also weighed on growth.
There is, however, a risk that first-quarter growth could be lowered
to show a contraction after a report from the Commerce Department
showed an unexpectedly smaller rebound in construction spending in
While another report from the Labor Department showed an unexpected
rise in the number of Americans filing for unemployment benefits
last week, the overall trend in initial claims continued to point to
improving labor market conditions.
Initial claims for state unemployment benefits increased 14,000 to a
seasonally adjusted 344,000. Economists had expected a decline to
319,000. The four-week moving average for new claims rose only 3,000
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Claims are volatile around this time of the year because the timing
of the Easter and Passover holidays and school spring breaks makes
it difficult to adjust for seasonal fluctuations.
"The broader labor market picture has not changed materially and we
are expecting another firm employment print in April," said Bricklin
Dwyer, an economist at BNP Paribas in New York.
The government is expected to report on Friday that nonfarm
payrolls increased by 210,000 last month after rising by 192,000 in
March, according to a Reuters survey. The jobless rate is forecast
falling one-tenth of a percentage point to 6.6 percent.
In March, consumer spending was buoyed by a 1.4 percent surge in
goods purchases. Spending on durable goods rose 2.7 percent, the
largest increase since March 2010. Spending on services also
increased by a solid 0.7 percent, reflecting increased demand for
utilities and healthcare services.
Income increased 0.5 percent in March, the biggest gain since August
2013, after rising 0.4 percent in February.
Income continues to be supported by government subsidies for
healthcare payments. With spending outpacing income growth, the
saving rate, which is the percentage of disposable income households
are socking away, hit a 14-month low.
Despite the rise in consumer spending, inflation was benign. A price
index for consumer spending rose 0.2 percent in March after rising
0.1 in February. It was up 1.1 percent from a year ago, compared to
a 0.9 percent year-on-year advance in February.
Excluding food and energy, prices also rose 0.2 percent after
gaining 0.1 percent in February. They were up 1.2 percent from a
year ago in March, compared to a 1.1 percent year-on-year rise in
Both measures remain stuck well below the Fed's 2 percent inflation
target, giving the central bank room to keep benchmark interest
rates near zero for a while. The Fed plans to wrap up a bond-buying
program later this year, but it is not expected to move rates higher
until sometime in 2015.
(Reporting by Lucia Mutikani; additional reporting by Ryan Vlastelica;
editing by Paul Simao)
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