Exports, inventories seen boosting U.S. first-quarter growth
* First-quarter GDP forecast rising at a 2.0 percent rate
* Inventories, trade expected to boost growth
* Consumer spending, business investment seen slowing
By Lucia Mutikani
WASHINGTON, April 26 (Reuters) - The U.S. economy likely
maintained a moderate pace of growth in the first quarter, which
could further dispel earlier fears of a recession even though
activity was driven by temporary factors.
The Commerce Department's gross domestic product (GDP)
report to be published on Friday at 8:30 a.m. EDT (1230 GMT) is
expected to sketch a picture of an economy growing close to
potential, mostly reflecting the impact of an ebbing boost from
a giant fiscal stimulus and past interest rate increases.
Gross domestic product probably increased at a 2.0 percent
annualized rate in the first quarter as a burst in exports,
strong inventory stockpiling and government investment in public
construction projects offset slowdowns in consumer and business
spending, according to a Reuters survey of economists.
With global growth still sluggish, the surge in exports is
likely to reverse and the inventory build will probably need to
be worked off, which could curtail production at factories. That
could restrain growth in the second quarter.
The economy grew at a 2.2 percent pace in the
October-December period. Growth has stepped down from a peak 4.2
percent pace in the second quarter of 2018, when the White
House's $1.5 trillion tax cut package jolted consumer spending.
Economists estimate the speed at which the economy can grow
over a long period without igniting inflation at between 1.7 and
2.0 percent. The economy will mark 10 years of expansion in
July, the longest on record.
"The economy remains solid, but we anticipate a slowing in
the pace of growth in the medium term as the tailwinds from
fiscal stimulus fade and the headwinds of tighter monetary
policy take hold," said Sam Bullard, a senior economist at Wells
Fargo Securities in Charlotte, North Carolina.
The economy stumbled at the turn of the year, with a batch
of weak economic reports suggesting first-quarter GDP growth as
low as a 0.2 percent rate. The soft data stream stoked fears of
a recession that were also exacerbated by a brief inversion of
the U.S. Treasury yield curve.
Some of the weak data, especially retail sales, were blamed
on a 35-day partial shutdown of the federal government, which
hurt confidence and delayed processing of tax refunds. Since the
shutdown ended on Jan. 25, economic data have mostly perked up,
leading to a sharp upgrading of first-quarter GDP estimates.
"Slower, but moderate economic growth is continuing and we
might see some slight acceleration as we head into second
quarter," said Sung Won Sohn, an economics professor at Loyola
Marymount University in Los Angeles.
WEAK DOMESTIC DEMAND
The improvement in the economy's fortunes has been mirrored
by strong corporate profits for the quarter.
Some economists caution that growth could surprise on the
downside because of a seasonal quirk. The so-called residual
seasonality has tended to understate economic growth in the
first quarter. Though the government said last year it had
addressed the methodology problem, economists believe residual
seasonality has not been entirely eliminated from the data.
A surge in exports and weak imports are expected to have
sharply narrowed the trade deficit in the first quarter. Trade
is believed to have added more than one percentage point to GDP
after being neutral in the fourth quarter.
Trade tensions between the United States and China have
caused wild swings in the trade deficit, with exporters and
importers trying to stay ahead of the tariff fight between the
two economic giants.
The trade standoff has also had an impact on inventories,
which are expected to have increased in the first quarter at
their strongest pace since 2015. Part of the inventory build is
related to weak demand, especially in the automotive sector.
Inventories are expected to have contributed a full
percentage point to first-quarter GDP after adding one-tenth of
a percentage point in the October-December period.
Excluding trade and inventories, the economy is expected to
have expanded at a roughly 1.6 percent rate in the first
quarter. Economists said Federal Reserve officials were likely
to focus on this growth measure.
The Fed recently suspended its three-year monetary policy
tightening campaign, dropping forecasts for any interest rate
hikes this year. The U.S. central bank increased borrowing costs
four times in 2018.
"The composition of the data will not look favorably on
domestic economic activity, nor provide a positive forward look
at current quarter activity," said Joe Brusuelas, chief
economist at RSM in New York. "Policymakers will likely look
past this growth report when formulating rate policy."
Growth in consumer spending, which accounts for more than
two-thirds of U.S. economic activity, is expected to have slowed
significantly from the fourth quarter's 2.5 percent rate.
Economists said the government shutdown was the main factor
behind the anticipated deceleration in spending.
A moderation is also expected in businesses spending on
equipment because of the delayed impact of sharp drops in oil
prices toward the end of 2018 and fading depreciation provisions
in the 2018 tax bill. Supply chain disruptions caused by
Washington's trade war with Beijing were also seen crimping
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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