WRAPUP 1-U.S. economy likely grew 3.4 pct in first quarter

* Economy seen expanding at a 3.4 pct pace in Q1

* Consumer spending growth probably doubled

* Business investment likely rose, residential faltered

By Lucia Mutikani

WASHINGTON, April 30 (BestGrowthStock) – U.S. economic growth
probably slowed in the first quarter, data is expected to show
on Friday, but resurgent consumer spending should offer
evidence of a sustainable recovery.

The economy expanded at a 3.4 percent annual rate in the
first three months of the year, economists polled by Reuters
believe. That would mark a slowdown from the 5.6 percent pace
logged in the fourth quarter when the economy got a big lift as
businesses curbed efforts to cut inventories.

The advance report on U.S. gross domestic product from the
Commerce Department due at 8:30 a.m. (1230 GMT) should mark
three straight quarters of growth as the economy digs out of
its worst recession since the Great Depression.

GDP measures total goods and services output within U.S.
borders.

Though the economy took a step back from its brisk pace in
late 2009, Friday’s report should show areas such as consumer
and business spending proved more robust in the first quarter,
analysts said.

The bulk of the growth in the fourth quarter came as
businesses met more demand with new production and less by
selling off goods sitting on the shelf.

Inventories are expected to play a lesser role in the first
quarter, when consumers are seen taking up the baton.

“The key thing for sustaining and growing the U.S. economy
is consumer spending. Everything we know about the first
quarter is looking very strong in that area,” said Kurt Karl,
head of economic research at Swiss Re in New York.

Data that has already come in on consumer spending has been
robust. Analysts expect consumer spending during the quarter
grew at a rate anywhere between 3.2 percent and 4 percent.

Consumer spending, which normally accounts for about 70
percent of U.S. economic activity, grew only at a 1.6 percent
pace in the fourth quarter.

There have been worries the U.S. recovery, which has been
led by the manufacturing sector as businesses begin to rebuild
inventories, could sputter if consumers did not come on board.
These concerns are beginning to take a back seat.

HANDOFF TO CONSUMERS

“There is growing evidence of a handoff from stimulus and
inventory-driven growth to broader sources of demand, although
we still look for overall moderate growth,” said Julia
Coronado, an economist at BNP Paribas in New York.

The U.S. Federal Reserve on Wednesday noted economic
activity had continued to strengthen in recent week and the
labor market was starting to improve.

However, saying it sill expects a modest recovery, it left
benchmark overnight lending rates near zero and renewed its vow
to keep them low for an extended period.

While inventories will still contribute to first quarter
growth, it will be far less than the 3.8 percentage points of
U.S. growth it accounted for in the fourth quarter.

Excluding inventories, the economy is expected to have
expanded at a 2.1 percent rate, up from 1.7 percent in the
fourth quarter.

Boding well for the recovery is business spending on
software and equipment, which is expected to have continued its
upward trend in the January-March period.

“If they are spending on equipment already, it shows a lot
of confidence for the future hiring which supports consumer
spending. If we continue to have employment growth, we will
have a good year,” said Swiss Re’s Karl.

Last month the economy enjoyed the strongest jobs growth in
three years as private employers stepped up hiring.

Investment in new homes, which showed some hesitancy early
this month, is expected to be a drag on growth in the first
quarter — after two quarters of gains. Spending on structures
likely subtracted from GDP for a seventh straight quarter.

With some of the rise in domestic demand being met through
imports, a wider trade deficit will chip at growth in the first
quarter.

Money
(Reporting by Lucia Mutikani; Editing by Andrew Hay)

WRAPUP 1-U.S. economy likely grew 3.4 pct in first quarter