Posted on 04/23/2004 4:06:20 PM PDT by TopQuark
First-quarter GDP another scorcher
By Rex Nutting, CBS.MarketWatch.com Last Update: 6:49 PM ET April 23, 2004
WASHINGTON (CBS.MW) -- For the third quarter in a row, U.S. economic growth has exceeded all expectations.
Following a blowout third quarter and a very strong fourth quarter, most economists expected the economy to pause just a bit in the first three months of 2004.
Instead, growth apparently accelerated, boosted by consumer spending, business investment, housing and inventory stocking.
The first estimate of first-quarter growth will be released by the Commerce Department on Thursday morning. The report is the highlight of another fairly busy week on the economic calendar.
Economists surveyed by CBS MarketWatch expect, on average, annualized growth of 5 percent in the first quarter after 4.1 percent growth in the fourth quarter and 8.2 percent in the third. See Economic Calendar.
It would be the first time in 10 years that growth exceeded 4 percent for three straight quarters.
"With the Fed now in play, financial market sensitivity to indicators of economic growth and inflation has increased," said Peter Kretzmer, senior economist for Banc of America Securities. "The advance GDP report looms as a key potential source of volatility prior to the May 4 [Federal Open Market Committee] meeting."
"The GDP figures will provide a bit of a test case for markets," agreed Joe Abate, an economist for Lehman Brothers.
Along with the stronger growth, the bond market will be paying close attention to the inflation gauges that accompany the GDP report. The core personal consumption expenditure deflator (a favorite of Federal Reserve Chairman Alan Greenspan) is expected to rise at a 1.7 percent annual rate in the quarter, up from 1.2 percent in the fourth quarter, Abate said.
"We've had a lot of false starts," said Diane Swonk, chief economist for Bank One. But finally, "the recovery is getting more rooted. We now have extremely strong growth."
Growth was well balanced in the first quarter, economists figure. Although they don't have all the monthly details just yet, it's clear that consumer spending and business investment maintained momentum during the quarter. Inventory restocking probably added significantly to growth. Housing was less a factor than in earlier quarters, but still contributed to growth.
There's more to come, Swonk said. She figures economic growth will accelerate in the second half of the year, despite losing the boost from income tax cuts and mortgage refinancing cash-outs.
Businesses will likely expand investments in coming quarters. "We have a lot of catching up to do," she said. Plus, an investment tax incentive for small businesses will expire at the end of the year, causing a rush of investments beforehand. Consumer spending should remain healthy as more jobs are created, she said.
Swonk is slightly more optimistic than the consensus, which sees growth "slowing" to about 4 percent in the second half of the year.
"The backup in interest rates is already beginning to take some of the froth off of financial conditions, which have been more supportive than at any time in the past two decades," said Robert DiClemente, economist for Citigroup Capital Markets. "Nevertheless, underlying growth likely will remain solid (the 4 percent to 4.5 percent range) for the foreseeable future."
Such growth, while not favorable for bond investors, should be good for equities. However, stock market investors seem to be letting fears of higher interest rates overshadow strong corporate earnings.
After adjusting to the prospect of interest rates climbing from their abnormally low levels, investors should realize that rising profits could still support higher equity prices this year," said Lynn Reaser, chief economist for Banc of America Capital Management. "A strengthening in pricing power should help profit margins, while interest rates are likely to remain moderate."
Other data
Mortgage have risen off their lows, but Realtors and mortgage bankers still expect another banner year. Data on new home sales and existing home sales for March will be released this coming week. Sales are expected to remain at lofty levels in March.
Consumer confidence has suffered from high gas prices, anemic hiring and wage growth, a stagnant stock market, and lingering fears and doubts about terrorism. Economists don't expect much change in either the Conference Board or University of Michigan surveys for April to be released in the coming week.
Consumer spending probably bounced higher in March, rising about 0.8 percent after 0.2 percent in February. Incomes, meanwhile, probably rose half as fast.
An early peek at the April data comes Friday morning with the Chicago purchasing managers index. Economist look for a small gain from a very strong level.
Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
Tom Daschle is deeply saddened.
John Kerry is just clueless.
Tom Daschle is deeply saddened.
John Kerry is just clueless.
John Kerry is just clueless. So much so that he still thinks there is a better way. Day by day more and more people see that John Ketchup Boy Kerry is the wrong choice for America.
</dan rather>
John Kerry is just clueless.
Hey John, why the long face?
"I'm
deeply
saddened"
Yes. Well put. If it were bad news it would lead the network news. Since it is good news it may or may not get an airing.
The Err America crowd probably read this story and asked - What's a GDP?
LOL
You know, making fun of that quote never gets old.
It's not really cash, is it? It's "cash and marketable securities;" i.e., certificates of deposite and other notes. So this "cash" is in the economy: it is being lent by banks to businesses and consumers.
Also, it the consumer/shareholder were short on cash, he would demand at a shareholder meeting that the dividend be paid. None requested this measure.
Once they start coming on board, then GWB's poll numbers will shoot up.
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