Instant View: First-quarter growth revised down to 3.0 percent

NEW YORK (BestGrowthStock) – The U.S. economy grew at a slower pace than previously estimated in the first quarter as businesses investment slackened, while hard-hit state and local governments curbed spending at the steepest rate since 1981, a government report showed on Thursday.

U.S. unemployment claims fell last week, suggesting the battered labor market is recovering but only slowly, the Labor Department said on Thursday.

KEY POINTS:

GDP: * Gross domestic product expanded at a 3.0 percent annual rate, the Commerce Department said, instead of the 3.2 percent pace it reported last month. * 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 January-March period. * Output in the first three months of the year was revised down as business spending rose at only a 3.1 percent rate instead of the 4.1 percent initially reported last month. * Spending grew at a 5.3 percent pace in the fourth quarter. * Business spending on software and equipment increased at a 12.7 percent rather than the 13.4 percent rate reported last month. * State and local government spending contracted at a 3.9 percent rate, the largest decline since the second quarter of 1981. * Consumer spending increased at a 3.5 percent rate, rather than the 3.6 percent rate reported last month. * The GDP report also showed after tax corporate profits rose 2.1 percent in the first quarter after increasing 6.5 percent in the final three months of 2009.

JOBLESS CLAIMS: * New applications for state jobless benefits dropped to 460,000 in the week ended May 22 from an upwardly revised 474,000 in the prior week. * Economists polled by Reuters had forecast claims would fall to 455,000. * The number of people still receiving benefits after an initial week of aid stood at 4.61 million as of May 15. * The four-week moving average of new claims, a more reliable measure of underlying trends, rose slightly to 456,500.

COMMENTS:

CRAIG THOMAS, SENIOR ECONOMIST, PNC FINANCIAL SERVICES, PITTSBURGH:

GDP: “It’s disappointing because everyone had expected an upward revision. That didn’t come to fruition. This tells you that people were not as happy last quarter as we had thought.

“People who are worried about the economy may latch on to this downward revision. This speaks to their worry, but consumers are doing well and there are still a lot of things to like in this report.”

JOBLESS CLAIMS: “It’s a little disappointing. We had nice job creation the last couple of months, but claims seem to be stuck here in this range.”

PIERRE ELLIS, SENIOR GLOBAL ECONOMIST, DECISION ECONOMICS, NEW YORK:

GDP: “This doesn’t give a different message from the initial reading. You have a decent increase in final sales, while the inventories still add about half to GDP growth.

“The issue is whether final sales to domestic purchase will grow? There is no reason to question that on the basis of these numbers.”

JOBLESS CLAIMS: “The decline is not enough to erase the picture of deterioration from last week. That may not be a one-time glitch. There is a moderately increased chance of more layoffs. One could interpret that managers are getting cautious about what’s happening in Europe.”

SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES & ASSOCIATES, ST PETERSBURG, FLORIDA:

“GDP was a little bit disappointing. Most people were looking for an upward revision. That said, there was still pretty good growth in consumer spending and investment in software on the business side.

“A lot of the first-quarter strength in consumer spending came through a drop in the savings rate which is unsustainable, but the key is job growth going forward.

“The claims data we got this morning were also disappointing.

“These data were a slight help to Treasuries. But mostly, Treasuries are watching the stock market.”

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

“The numbers are slightly shy of hopes, but they show that the U.S. economy is in recovery, which matches the data we recently saw on the housing market. Though the numbers are a little shy of consensus, markets will move higher today because of recovery in the euro. The stock market is bottoming out, and these datapoints aren’t enough to hold equities lower.”

MARKET REACTION: STOCKS: U.S. stock index futures slightly pare gains after GDP, jobless claims data. BONDS: U.S. Treasury debt prices pare losses. DOLLAR: U.S. dollar trims losses versus euro.

Investing Analysis

Instant View: First-quarter growth revised down to 3.0 percent