--US Q1 GDP +2.0% vs +1.0% in Q4; well above analysts' projections
--US Q1 final sales +4.6% vs +1.7% in Q4
--US Q1 consumer spending +3.1% vs +2.8% in Q4
--US Q1 government spending +4.0% vs +2.9% in Q4
--US Q1 capital spending +1.1% vs -0.1% in Q4
--US Q1 GDP PCE price index +3.3% vs +1.9% in Q4
--US Q1 core GDP PCE price index +2.7% vs +1.6% in Q4
--Q1 GDP price deflator +3.2% vs +2.0% in Q4
--US net exports added 1.4 pt to Q1 GDP
--US net inventories subtract 2.5 pt from Q1 GDP
--Commerce: US consumer spending largest contributor to GDP rise
--US personal savings rate falls to record low -1.0% in Q1
By Simon Kennedy Washington, April 27 (BridgeNews) - Consumers underpinned the U.S. economy in the first quarter, as their spending helped gross domestic product expand 2.0%, well above analysts' expectations of a 1.1% rise and fourth-quarter growth of 1.0%. At the same time, inflation picked up markedly, with the GDP price deflator surging 3.2%, the fastest in a year, the Commerce Department reported Friday. * * * Consumer spending, responsible for two-thirds of economic output, jumped 3.1% in the first three months of 2001, confounding those analysts who feared a pullback as stock prices plummeted and confidence in the economy waned. In the fourth quarter, consumer spending rose 2.8%, the slowest rate in nearly three years.
Commerce said consumer outlays--led by a 4.6% surge in final sales--were the key reason for the step-up in GDP growth, which had faded to its slowest rate in over five years during the fourth quarter.
The strength of consumer expenditures was underscored by a 3.0% increase in final sales to domestic buyers, which many economists view as a key indicator of demand. A downside to consumer spending was that the personal savings rate dropped to a negative 1.0%, a record low, from a negative 0.7% in the fourth quarter.
Capital spending, which even the Federal Reserve has expressed concern about, also supported growth, albeit moderately, advancing 1.1% in the first quarter after slipping 0.1% in the prior three months. The increase in capital spending was led by construction.
An improving trade balance also played a part in bolstering the economy. Net exports contributed 1.4 percentage points to first-quarter growth, the first time they have not subtracted from GDP since the last quarter of 1998. A 4.0% increase in government spending--boosted by a 5.7% jump in federal outlays--also aided the economy. However, detracting from growth, U.S. companies continued to pare bloated stockpiles. The change in private inventories subtracted 2.5 percentage points from first-quarter growth, the most in nearly three years. Although it is a weight on growth, the large reduction in inventories will cheer those who maintain that the slowing economy merely reflects firms' having to rebalance their supply of goods with demand. While the economy's surprisingly strong performance in the first three months of the year will undoubtedly hearten the Fed, the central bank will remain ready to cut interest rates further amid speculation that the economy will still be weaker in coming months.
The Fed has sought to combat a flagging economy by slashing short-term interest rates 2 percentage points since January to 4.5%--their lowest level in over 6 years. Analysts expect a further cut in rates when officials next gather May 15.

INFLATION
The GDP report contained some worrying news regarding inflation, whose tameness in previous months has allowed the Fed to focus on slow economic growth. The GDP price index and deflator both rose 3.2%, their steepest climb in a year.
Meanwhile, the personal consumption price index was up 3.3%, well above the 1.9% increase of the fourth quarter. Excluding food and energy, the core PCE price index rose 2.7% in the first quarter versus 1.6% in the prior quarter.

WHAT WAS EXPECTED:
The BridgeNews survey of economists' estimates for GDP growth ranged from up 0.3% to up 2.0%. The final sales projections ranged from up 1.5% to up 3.6% with the consensus at up 2.1%. The PCE index was expected to rise 3.0%, while the price deflator was pegged at 2.9% in a range of 2.0% to 3.3%. End