The biggest gain in consumer spending in a year probably helped the U.S. economy keep expanding in the first quarter even as fuel costs climbed, economists said before a report this week.
Gross domestic product, the value of all goods and services the nation produced, rose at a 2.5 percent annual rate after advancing 3 percent in the previous three months, according to the median forecast of 72 economists surveyed by Bloomberg News before the Commerce Department’s April 27 release. Consumer purchases that account for about 70 percent of the economy climbed by the most since the end of 2010, the survey showed.
Job creation and warmer winter weather helped Americans overcome higher prices at the gas pump as auto sales powered ahead and retailers enjoyed more foot traffic. At the same time, the pace of growth may not be enough to convince Federal Reserve policy makers meeting this week to stray from their plan to keep borrowing costs low through 2014.
“Consumer activity really accelerated last quarter,” said Christopher Low, chief economist at FTN Financial in New York. “The increase in retail sales we saw was really terrific, and it came after three months of almost no spending growth at all.”
The economy needs to expand at a faster pace to drive down unemployment and generate bigger job gains, Fed Chairman Ben S. Bernanke said in a speech on March 26. Federal Open Market Committee members begin a two-day meeting on April 24.
With the interest-rate target near zero, the Fed will “reiterate that it is likely to remain at that level into 2014 because of subpar economic growth and elevated unemployment,” Steven Wood, president of Insight Economics LLC in Danville, California, said in a note to clients.
Other data this week may show housing continued to stabilize and demand for durable goods declined as Boeing Co. received fewer aircraft orders.
A projected 2.3 percent increase in first-quarter household purchases would follow a 2.1 percent gain in the prior period, according to the median projection ahead of the Commerce Department’s GDP release. Retail sales in the U.S. advanced at an average rate of 0.8 percent last quarter, the fastest in a year.
Underscoring the pickup in purchases, employers in the U.S. took on more workers. Payrolls increased by 635,000 from January through March, the biggest quarterly gain since the first three months of 2006, data from the Labor Department show.
Employment and the accompanying income gains helped alleviate some of the strain from higher fuel prices. The cost of a gallon of gas at the pump jumped 65 cents from the beginning of the year to $3.93 on March 31, which was the highest level in 10 months, according to AAA, the largest U.S. auto group.
“The industry and consumers have been very resilient in the face of higher pump prices,” Don Johnson, vice president of U.S. sales at General Motors Co., said on a call with analysts on April 3. “The steadily improving economy is playing a role and so is pent-up demand and an improved credit market.”
Unseasonably mild temperatures may have also spurred activity. The January to March period was the warmest first quarter on records going back to 1895, according to the National Oceanic and Atmospheric Administration. The temperature averaged 42 degrees Fahrenheit (5.6 degrees Celsius) during the three months, 6 degrees above the 20th century average.
Stocks advanced along with the economy in the first quarter. The Standard & Poor’s 500 Index climbed 12 percent, including a 3.1 percent increase in March. That marked the strongest three-month start to a year since a 13.5 percent advance in the first quarter of 1998.
Fed officials may stay the course on monetary policy, electing to hold off on more monetary stimulus unless the economic expansion falters, according to the minutes of their March 13 meeting.
“The recovery may be finally establishing a somewhat firmer footing,” Federal Reserve Bank of New York President William C. Dudley told business leaders in Syracuse, New York, on April 12. Even so, “it is still too soon to conclude that we are out of the woods,” he added.
The central bankers will release a statement on monetary policy along with their projections for growth, unemployment and inflation on April 25.
“The chairman and the rest of the Fed governors believe that 2 percent to 2.5 percent growth is not nearly fast enough to keep employment improving at its current pace,” Low said.
Housing may be stabilizing. A report from the Commerce Department on April 24 may show new-home sales rose 1.6 percent to a 318,000 annual rate in March, according to economists surveyed. Data on pending home sales, released by the National Association of Realtors two days later, may show they increased 1 percent in March.
A report from the Commerce Department on April 25 will show a 1.7 percent decrease in March orders for durable goods, according to the median forecast in a Bloomberg survey. Boeing orders totaled 53, down from 237 a month earlier. Demand minus transportation equipment rose 0.5 percent, the median estimate showed.
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