U.S. Economy Grew at a 4.4% Rate in First Quarter
Bloomberg ^ | May 27, 2004 | Carlos Torres
May 27 (Bloomberg) -- The U.S. economy grew at a 4.4 percent annual pace from January through March, faster than estimated last month, as businesses replenished inventories, government spending rose and home construction accelerated. Corporate profits over the last year increased by the most in two decades.
The revised reading on gross domestic product, the value of all goods and services produced, compares with the advance estimate of 4.2 percent annual rate issued last month, the Commerce Department said in Washington. Profits, reported for the first time today, jumped 31.6 percent in the 12 months ended in March, the biggest increase since the first quarter of 1984.
Increasing sales and profits have given companies such as Intel Corp. and Texas Instruments Inc. the confidence to ramp up production and boost inventories. A rebound in manufacturing and more investment in new equipment will enable the economy to keep growing for the rest of the year.
``Rising profits give businesses sufficient room to continue to expand capacity and hire,'' said Peter Kretzmer, a senior economist at Banc of America Securities in New York, before the report. ``We have moved clearly into a self-sustaining expansion.''
The Labor Department reported that first-time claims fell by 3,000 last week to 344,000. The four-week average, a less volatile measure, rose to 335,500 from 334,000, which was the lowest since November 2000.
Economists had forecast GDP grew at a 4.5 percent pace last quarter, based on the median of 72 estimates in a Bloomberg News survey. The economy expanded 5 percent during the 12 months ended in March, the most since 1984.
President George W. Bush is counting on an acceleration of growth to spur hiring in the months leading up to the U.S. elections in November. Polls this week showed a majority of voters disapprove of the way Bush is handling the economy as the president's job-approval ratings fell to the lowest during his presidency.
Incomes
Wages and salaries increased $57.8 billion in the fourth quarter, $18.3 billion more than previously estimated, based on revisions that incorporate wage statistics from state unemployment insurance data. Disposable income, adjusted for inflation, rose 4.9 percent in the first three months of the year, more than the 4.3 percent previously estimated.
Adjusted for inflation, GDP totaled $10.7 trillion at an annual rate. Unadjusted for the change in prices, it totaled $11.5 trillion and rose at a 7.2 percent annual rate. The price deflator used to adjust the figures rose at a 2.6 percent annual rate during the quarter, faster than the 2.5 percent pace previously estimated.
The personal consumption expenditures price index, a measure of inflation watched by Federal Reserve Chairman Alan Greenspan and other policy makers and tied to spending, rose at a 3 percent annual pace, slower than the 3.2 percent previously reported. It rose at a 1 percent pace in the fourth quarter. Excluding food and energy, the core PCE price index rose at a 1.7 percent rate, slower than the 2 percent estimated last month.
Inventories
Companies boosted inventories at a $28.2 billion annual rate, compared with a $15.3 billion increase estimated last month. The rise added 0.75 percentage point to GDP.
Final sales, which exclude inventories, rose at a 3.7 percent annual pace last quarter, compared with a 3.9 percent increase reported last month.
Residential housing construction was revised higher to show a 3.8 percent annual rate last quarter compared with a 2.1 percent increase previously estimated.
Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 5.8 percent annual rate in the first quarter, compared with a 7.2 percent gain initially estimated. The rise was led by a 9.8 percent increase in spending on new equipment.
Consumer Spending
Consumer spending, which accounts for 70 percent of the economy, grew at a 3.9 percent annual pace from January through March compared with a 3.8 percent rise initially estimated. Spending has averaged annualized gains of 3.5 percent a quarter in the last two decades.
GDP would have been greater if not for a deterioration in the nation's trade balance. The country imported $525.2 more goods and services at an annual rate than it exported last quarter. The government estimated last month the deficit would be $514.6 billion. The trade gap subtracted 0.35 percentage point from growth.
Government spending rose at a 2.9 percent annual rate last quarter rather than the initial estimate of 2 percent.
Profits, adjusted for capital depreciation and changes in the value of inventories, rose to $1.22 trillion last quarter, 1.2 percent higher than the last three months of 2003.
Corporate Spending
``If companies have the profits, they will spend them and profits are absolutely soaring,'' said Ken Mayland, president of Clear View Economics LLC, in Pepper Pike, Ohio, before the report.
Intel and Texas Instruments, the two biggest U.S. semiconductor makers, increased inventories in the first quarter to the highest levels since 2001 as sales rose. Profit at Dallas- based Texas Instruments more than tripled as sales jumped 34 percent compared to the same period last year. The sales increase was the biggest in at least a decade.
``We expect it to be a good year,'' said Richard Templeton, chief executive at Texas Instruments in an interview earlier this month. ``We did have some inventory build that we did on purpose anticipating a stronger second quarter. We think that's important to make sure that we can meet customers' demand.''
The company said in April it would spend $1.3 billion on new equipment and other forms of capital expenditures this year, compared with a previous forecast of $1.1 billion.
Forecast
Other companies are also boosting spending. Shipments of non- defense durable goods excluding aircraft, a figure used by the government to construct quarterly GDP report, rose 0.7 percent in April following a 3.5 percent gain the previous month, the Commerce Department reported yesterday.
``This leaves the 14 percent growth we are projecting for equipment and software investment in the second quarter well within reach,'' said Henry Willmore, chief U.S. economist at Barclays Capital Inc. in New York.
Gross domestic product may expand 4.6 percent for all of 2004, compared with 3.1 percent in 2003, based on the median forecast in a separate Bloomberg News survey earlier this month. This year's projected growth would be the fastest since 7.2 percent in 1984.
Bloomberg ^ | May 27, 2004 | Carlos Torres
May 27 (Bloomberg) -- The U.S. economy grew at a 4.4 percent annual pace from January through March, faster than estimated last month, as businesses replenished inventories, government spending rose and home construction accelerated. Corporate profits over the last year increased by the most in two decades.
The revised reading on gross domestic product, the value of all goods and services produced, compares with the advance estimate of 4.2 percent annual rate issued last month, the Commerce Department said in Washington. Profits, reported for the first time today, jumped 31.6 percent in the 12 months ended in March, the biggest increase since the first quarter of 1984.
Increasing sales and profits have given companies such as Intel Corp. and Texas Instruments Inc. the confidence to ramp up production and boost inventories. A rebound in manufacturing and more investment in new equipment will enable the economy to keep growing for the rest of the year.
``Rising profits give businesses sufficient room to continue to expand capacity and hire,'' said Peter Kretzmer, a senior economist at Banc of America Securities in New York, before the report. ``We have moved clearly into a self-sustaining expansion.''
The Labor Department reported that first-time claims fell by 3,000 last week to 344,000. The four-week average, a less volatile measure, rose to 335,500 from 334,000, which was the lowest since November 2000.
Economists had forecast GDP grew at a 4.5 percent pace last quarter, based on the median of 72 estimates in a Bloomberg News survey. The economy expanded 5 percent during the 12 months ended in March, the most since 1984.
President George W. Bush is counting on an acceleration of growth to spur hiring in the months leading up to the U.S. elections in November. Polls this week showed a majority of voters disapprove of the way Bush is handling the economy as the president's job-approval ratings fell to the lowest during his presidency.
Incomes
Wages and salaries increased $57.8 billion in the fourth quarter, $18.3 billion more than previously estimated, based on revisions that incorporate wage statistics from state unemployment insurance data. Disposable income, adjusted for inflation, rose 4.9 percent in the first three months of the year, more than the 4.3 percent previously estimated.
Adjusted for inflation, GDP totaled $10.7 trillion at an annual rate. Unadjusted for the change in prices, it totaled $11.5 trillion and rose at a 7.2 percent annual rate. The price deflator used to adjust the figures rose at a 2.6 percent annual rate during the quarter, faster than the 2.5 percent pace previously estimated.
The personal consumption expenditures price index, a measure of inflation watched by Federal Reserve Chairman Alan Greenspan and other policy makers and tied to spending, rose at a 3 percent annual pace, slower than the 3.2 percent previously reported. It rose at a 1 percent pace in the fourth quarter. Excluding food and energy, the core PCE price index rose at a 1.7 percent rate, slower than the 2 percent estimated last month.
Inventories
Companies boosted inventories at a $28.2 billion annual rate, compared with a $15.3 billion increase estimated last month. The rise added 0.75 percentage point to GDP.
Final sales, which exclude inventories, rose at a 3.7 percent annual pace last quarter, compared with a 3.9 percent increase reported last month.
Residential housing construction was revised higher to show a 3.8 percent annual rate last quarter compared with a 2.1 percent increase previously estimated.
Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 5.8 percent annual rate in the first quarter, compared with a 7.2 percent gain initially estimated. The rise was led by a 9.8 percent increase in spending on new equipment.
Consumer Spending
Consumer spending, which accounts for 70 percent of the economy, grew at a 3.9 percent annual pace from January through March compared with a 3.8 percent rise initially estimated. Spending has averaged annualized gains of 3.5 percent a quarter in the last two decades.
GDP would have been greater if not for a deterioration in the nation's trade balance. The country imported $525.2 more goods and services at an annual rate than it exported last quarter. The government estimated last month the deficit would be $514.6 billion. The trade gap subtracted 0.35 percentage point from growth.
Government spending rose at a 2.9 percent annual rate last quarter rather than the initial estimate of 2 percent.
Profits, adjusted for capital depreciation and changes in the value of inventories, rose to $1.22 trillion last quarter, 1.2 percent higher than the last three months of 2003.
Corporate Spending
``If companies have the profits, they will spend them and profits are absolutely soaring,'' said Ken Mayland, president of Clear View Economics LLC, in Pepper Pike, Ohio, before the report.
Intel and Texas Instruments, the two biggest U.S. semiconductor makers, increased inventories in the first quarter to the highest levels since 2001 as sales rose. Profit at Dallas- based Texas Instruments more than tripled as sales jumped 34 percent compared to the same period last year. The sales increase was the biggest in at least a decade.
``We expect it to be a good year,'' said Richard Templeton, chief executive at Texas Instruments in an interview earlier this month. ``We did have some inventory build that we did on purpose anticipating a stronger second quarter. We think that's important to make sure that we can meet customers' demand.''
The company said in April it would spend $1.3 billion on new equipment and other forms of capital expenditures this year, compared with a previous forecast of $1.1 billion.
Forecast
Other companies are also boosting spending. Shipments of non- defense durable goods excluding aircraft, a figure used by the government to construct quarterly GDP report, rose 0.7 percent in April following a 3.5 percent gain the previous month, the Commerce Department reported yesterday.
``This leaves the 14 percent growth we are projecting for equipment and software investment in the second quarter well within reach,'' said Henry Willmore, chief U.S. economist at Barclays Capital Inc. in New York.
Gross domestic product may expand 4.6 percent for all of 2004, compared with 3.1 percent in 2003, based on the median forecast in a separate Bloomberg News survey earlier this month. This year's projected growth would be the fastest since 7.2 percent in 1984.
