PREVIEW-US 1st-quarter GDP seen +3.4 pct vs +5.6 pct Q4

WHAT: Advance U.S. first-quarter gross domestic product
estimate

WHEN: Friday, April 30 at 8:30 a.m. (1230 GMT)

REUTERS FORECASTS:

* The median forecast for first-quarter gross domestic
product growth is for a +3.4 percent annualized rate versus
+5.6 percent in the fourth quarter. Forecasts range from +1.8
percent to +4.7 percent.

* The median forecast for final sales of domestic product
— GDP minus change in private inventories — is +2.1 percent
versus +1.7 percent in the fourth quarter. Forecasts range from
+1.5 percent to +3.4 percent.

FACTORS TO WATCH:

A smaller contribution from the change in inventories
likely resulted in a slowdown in the economy’s growth pace in
the first quarter. A sharp moderation in the rate at which
businesses depleted stocks of unsold goods contributed 3.8
percentage points to the economy’s 5.6 percent annualized
growth rate in the fourth quarter.

When businesses increase inventories or slow the rate at
which they are liquidating them, manufacturers raise production
and this boosts GDP. Businesses are rebuilding inventories to
meet growing domestic demand.

Even though the economy may have taken a step back in the
last quarter, details of the report are likely to underscore a
broadening recovery, with consumers taking charge. Retail sales
were strong in the first quarter and analysts reckon consumer
spending probably grew to anywhere between a 3.5 and 4 percent
rate from 1.6 percent in the fourth quarter.

Strong consumer spending is vital to sustaining the
recovery, which is being led by manufacturing as businesses
replenish inventories. Final sales of domestic product, which
exclude inventories, and are considered a good indicator of
future GDP growth trends, are expected to have expanded more
strongly in the first quarter from the last final three months
of 2009. An improving labor market is encouraging consumers,
especially those in high-income jobs, to spend more than they
did during the recession.

Businesses are expected to have continued spending on
software and equipment, supporting growth. While other segments
of the economy thrived in the first quarter, investment in new
home construction and structures probably declined and was a
drag on growth. The weak spending reflects the fragile
residential housing market recovery and persistent problems in
commercial real estate.

Another drag on growth will come from a wider trade deficit
as companies import more to meet strengthening domestic
demand.

MARKET IMPACT:

U.S. stock investors will scrutinize the report for clues
on whether the recovery is self-sustaining. The benchmark S&P
500 (.SPX: ) has breached the uptrend line from Feb. 5 to the
19-month peak of April 26, so any negative element in the data
could cause the market to drift much lower.

In Tuesday’s sell-off, the S&P 500 blew through critical
support at 1,194 and the next critical downside targets to
watch, according to technicians, are 1,188 and then 1,184.

A stronger-than-expected GDP number will hurt Treasury debt
prices, while a worse-than-expected figure will support the
market. Nomura Securities sees key support levels on the
10-year Treasury note (US10YT=RR: ) yield at 3.78, 3.80 and 3.84
percent.

A bullish report would boost the U.S. dollar, especially
against the yen (JPY=: ), as it will raise expectations of an
interest rate hike by the Federal Reserve. A number that misses
forecasts could dent sentiment, but any losses in the dollar
will be limited as markets stay focused on debt troubles in
Greece and Portugal.

Key support levels for euro/dollar (EUR=: ) are at $1.32 and
$1.3128, followed by $1.31. Resistance is around $1.3400. For
dollar/yen, any dip towards the pair’s April low around 91.60
should be seen as a buying opportunity, targeting 95.

Investment Advice

(Polling by Bangalore newsroom)
(Reporting by Lucia Mutikani in Washington and Ellis Mnyandu,
Emily Flitter and Wanfeng Zhou in New York; Editing by James
Dalgleish)

PREVIEW-US 1st-quarter GDP seen +3.4 pct vs +5.6 pct Q4