Instant View: Economy grows 3.2 percent

NEW YORK (BestGrowthStock) – The U.S. economy grew at a slightly slower-than-expected pace in the first quarter, held back by inventories and exports, but resurgent consumer spending offered evidence of a sustainable recovery, a government report showed on Friday.

KEY POINTS: * Gross domestic product expanded at a 3.2 percent pace, the Commerce Department said in its first estimate — marking three straight quarters of growth as the economy climbs out of the worst recession since the 1930s. * Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 3.4 percent rate in the first three months of 2010 after a 5.6 percent growth pace in the fourth quarter. * Details of the report were fairly upbeat, with consumer spending accelerating at a 3.6 percent rate, more than double the 1.6 percent pace in the fourth quarter. The first-quarter rise was the largest since the first quarter of 2007. * Excluding inventories the economy expanded at a 1.6 percent rate following a 1.7 percent pace in the fourth quarter.

COMMENTS:

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES, NEW YORK:

“We view it very close to expectations, we had 3 percent. Frankly I haven’t found anything that’s all that big of a surprise yet. Consumer spending was almost spot on, inventories were almost spot on. Trade was weaker than we had anticipated.

“I’d walk away with some confidence that the economy has turned the corner. We’re definitely growing again, we got 3.6 percent growth in consumer spending, pretty good growth in business investment. The economy’s on the mend. That’s my take-away.”

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON ADVISORS, ALBANY, NEW YORK:

“Frankly I thought the numbers were pretty much in-line with expectations. 3.2 percent with sensible estimates ranging from 2.8 percent to 3.6 percent. It was very good news, obviously the number was driven largely by the rise in consumer spending. Consumer spending was very strong. So on balance it is a good report, it indicates pretty clearly the economy is expanding, it sets the stage for further expansion in employment and the economy and it is hard to find anything wrong with the report.

“Inflation remains very subdued which sets the stage for the Federal Reserve policy remaining very benign for an extended period of time, as they would say it. So on balance it is a very good report. It’s not going to be a big market mover because it was in-line with expectations and the real question that investors are asking is what is the economy going to do in the second, third and fourth quarters of 2010.”

WARD MCCARTHY, CHIEF FINANCIAL ECONOMIST, JEFFERIES & CO, NEW YORK:

“It’s good solid number. The headline reading is pretty close to expectations. Once you take a quick look under the hood you see some very positive signs there. This is just the latest piece of evidence to suggest that the recovery is sustainable.

“The inflation numbers also continued to be extremely subdued and as far as the long end of the yield curve is concerned that’s good news.”

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO, GREENWICH, CONNECTICUT:

“The data is a little bit below expectations, but from what I’m seeing the government data is a little bit weaker. But there are some pockets of strength there with the consumer. For the market, it’s not going to change things.”

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES LLC, CHARLOTTE, NORTH CAROLINA:

“It was pretty strong as expected, although we actually had expected a little bit of a stronger number. We continue to see a nice bounce back in output. We believe the second quarter is likely to be equally robust with about a three percent number in the current quarter and then we think things are going to slow in the second half of the year because production has been coming back faster than demand, and eventually we are going to see production move back in line with demand.”

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:

“Personal consumption has improved — it’s the strongest since the Lehman crisis. I’m very encouraged by that. I think it reflects the fact that the numbers we’ve been getting recently are supportive of growth, which is coming from domestic demand. Retail sales are up, people are spending money. We’re seeing the beginning of the process of a broad-based recovery. Of course, unemployment is still high, confidence is still weak. That’s why the Fed has adopted a very dovish attitude. One curious thing was that government consumption was down. That raises an eyebrow, because stimulus spending is supposedly what’s been driving the recovery.”

JAMES COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, COLONIAL HEIGHTS, VIRGINIA:

“The consumption portion of the data was extraordinary; really really good.

“If you build it and consumers are not buying what is being built then you have a sustainability problem. But this data shows you have follow through with consumption, and hiring should start to pick up.”

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

“Around 3 percent growth for the U.S. historically has been sustainable. It still allows the Fed flexibility as to when they decide to tighten policy.

“The figure is not far enough from consensus as to really move the equity or the bond markets.”

MARKET REACTION: STOCKS: U.S. stocks (Read more about the stock market today. ) pare gains. BONDS: U.S. Treasury debt prices trim losses. DOLLAR: U.S. dollar steady at lower levels vs euro

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Instant View: Economy grows 3.2 percent