U.S. growth probably slowed as fuel costs rose

April 25, 2011 - 0:0
The U.S. economy probably grew at a slower pace in the first quarter as a jump in gasoline prices caused consumers to cut back, economists said a report this week will show. Gross domestic product rose at a 1.9 percent annual pace after increasing at a 3.1 percent rate in the previous three months, according to the median estimate of 66 economists surveyed by Bloomberg News before an April 28 Commerce Department report. Other data may show business investment remained a pillar of the economic rebound, while home prices fell. Federal Reserve policy makers, when they meet this week, will likely say they’ll complete the second round of stimulus worth $600 billion, as scheduled, through the end of June to help sustain the recovery. While companies like General Electric Co. (GE) and Apple Inc. (AAPL) are among those benefiting from gains in spending on equipment and software, households are feeling the pinch of higher food and fuel prices. “The economy has hit a bit of a soft patch,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “If we continue to get these sharp jumps at the pump, that will be a major hit to consumer sentiment. There is a tipping point for consumers.” The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available. ----Spending cools Household purchases, which account for about 70 percent of the world’s largest economy, rose at a 2.1 percent annual pace following a 4 percent gain in the last three months of 2010, the best performance in four years, according to the survey median. Higher prices for necessities like food and energy may have hurt spending on less essential items. The cost of a gallon of regular gasoline rose 18 percent in the first three months of the year, according to AAA, the nation’s biggest motoring organization. The price has increased another 6 percent so far this month, reaching $3.85 a gallon on April 21, the highest since September 2008. Prices for all goods and services rose last quarter at a 2.4 percent annual pace, the biggest gain in more than two years, economists forecast the GDP will also show. American manufacturers are faring better than consumers as increasing demand from emerging economies like China supplements gains in business spending. ----‘Good shape’ “We’re in really good shape for accelerating industrial earnings growth,” Jeffrey Immelt, chief executive officer of Fairfield, Connecticut-based GE, said on a conference call last week. “All the precursors are in place: good equipment orders, good backlog growth, good service orders, international growing double digits, and we’re investing to build competitive advantage.” Orders for durable goods increased 2 percent in March after a 0.6 percent decline the prior month, economists forecast Commerce Department figures will show on April 27. Shares of machinery makers have outpaced the broader market since the beginning of the year. The Standard & Poor’s Supercomposite Machinery Index has climbed 9.8 percent compared with a 6.3 percent increase for the S&P 500 Index. (SPX) Fed policy makers, in two days of meetings beginning April 26, are likely to affirm they’ll finish a $600 billion Treasury- purchase program on schedule at the end of June, according to economists such as Neal Soss, chief economist at Credit Suisse in New York. Chairman Ben S. Bernanke will hold his first press conference following the central bank’s statement on April 27, giving him an opportunity to discuss his next steps. ----Home prices Housing continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through February fell 3.3 percent, the biggest decline since November 2009, according to the Bloomberg survey. The S&P/Case-Shiller index is due April 26. Sales of new homes, due tomorrow from the Commerce Department, rose 12 percent to a 280,000 annual pace in March, according to economists surveyed by Bloomberg. February’s 250,000 purchase pace was the lowest in data going back to 1963. Pending home sales, or contract signings for existing homes, rose 1.7 percent in March after a 2.1 percent increase the prior month, economists forecast the National Association of Realtors will report on April 28. Gains in employment, along with higher stock values, are outweighing the rise in gas prices and declining home values when it comes to measuring consumer attitudes. The Thomson Reuters/University of Michigan’s final sentiment index for April, due April 29, is projected to climb to 70 from 67.5 at the end of March, according to economists surveyed. The New York-based Conference Board on April 26 may show its confidence gauge rose to 64.5 from 63.4 last month, the survey showed. (Source: Bloomberg)