Manufacturing helps fuel first-quarter growth
By Vince Golle and Kristy McKeaney
Bloomberg News Service
WASHINGTON — The U.S. economy barreled ahead at the start of the year, recovering from its first recession in a decade as businesses with lean inventories ordered more from manufacturers to meet consumer demand, reports this week are expected to show.
Gross domestic product, the sum of all goods and services produced in the U.S., probably expanded at a 5 percent annual rate in the first quarter, according to a survey of economists by Bloomberg News Service.
The Commerce Department's report Friday is likely to show that quarterly growth was the strongest since April-June 2000 and almost three times as fast as in final three months of last year.
Orders to factories are rising months after consumer spending surged in the fourth quarter at the fastest pace in 3ý years. That helped companies, such as General Motors Corp., reduce inventories at a record pace in the same period.
"We are building a solid base for a recovery," said David Littmann, chief economist at Comerica Bank in Detroit. Manufacturing "is playing a very important undergirding role" in the rebound, he said.
Durable goods orders probably rose 0.5 percent in March, the fourth straight increase, after a 1.8 percent surge a month earlier, the Bloomberg News survey showed. The Commerce Department will issue that report on Wednesday.
To ensure the economy recovers from a recession that began in March of last year, Federal Reserve policy makers may leave the benchmark U.S. interest rate at a 40-year low for some time, Fed Chairman Alan Greenspan suggested to lawmakers last week.
"The U.S. economy has displayed a remarkable resilience over the past six months in the face of some very significant adverse shocks," Greenspan said. "But the strength of the economic expansion that is under way remains to be clarified."
A survey of regional economic activity from the Fed on Wednesday may reinforce Greenspan's view. The Fed's latest report card, commonly known as the beige book for the color of its cover, said on March 6 that "a majority of districts report some signs of improvement in economic conditions in January and early February."
The Fed's regional report card will be one topic of discussion when central bankers meet May 9 to discuss whether to raise the overnight bank lending rate above 1.75 percent, where it's been since December.
The government's statistics on first-quarter GDP will probably show businesses were reluctant to reduce inventories as much in the first three months of this year as they did in the final quarter of 2001. The $119.3 billion reduction in the fourth quarter subtracted 2.2 percentage points from growth, when the economy expanded at a 1.7 percent pace.
The level of inventories in the first quarter probably added about 3 percentage points to GDP growth, said David Wyss, chief economist at Standard & Poor's in New York.
General Motors, along with DaimlerChrysler Ag's Chrysler unit, increased production last week at 19 auto plants in the U.S. and Canada. General Motors increased North American production for this quarter by 3.9 percent to 1.48 million vehicles. Automakers have spurred demand with cash-back offers and zero-interest loans.
Home construction probably added to first-quarter growth, as well. Construction starts of new homes averaged a 1.715 million- unit annual rate in the first quarter, up from 1.571 million in the final three months of last year. And single-family home sales are staying close to last year's record pace, which may lead to more building in coming months.
