The U.S. economy may have expanded at a 4.5 percent annual pace in the first quarter, faster than the government estimated last month, as businesses kept more goods in stock to satisfy growing demand, a survey showed in advance of today's Commerce Department report. The projected growth rate is based on the median forecast of 73 economists surveyed by Bloomberg News and compares with the government's advance estimate of 4.2 percent. Inventories probably grew almost twice as much as initially estimated, according to a forecast by economists at J.P. Morgan Securities Inc. in New York. The report is set for 8:30 a.m. in Washington.
The strengthening economy is beginning to create jobs. A separate Labor Department report today may show first-time jobless claims fell to 335,000 last week from 345,000 the week before, according to the median forecast. Claims fell at the end of April to 318,000, the lowest since November 2000, and have averaged 347,550 a week this year, down from 402,100 last year. ``The baton is being handed off from consumer spending to business investment and inventories,'' said Ken Mayland, president of Clear View Economics LLC, in Pepper Pike, Ohio. ``We are entering the next phase of the expansion.'' Increasing sales have given companies such as Intel Corp. and Texas Instruments Inc. the confidence to ramp up production and boost inventories. A rebound in manufacturing and more investment in new equipment will enable the economy to keep growing for the rest of the year.
Inventory Gains
The report on gross domestic product, the sum of all goods and services produced in the U.S., may show inventories rose at a $28 billion annual rate last quarter compared with the $15.3 billion pace initially estimated, according to Bill Sharp, a senior economist at J.P. Morgan. The increase will add 0.5 percentage point the GDP figure, Sharp said. Intel and Texas Instruments, the two biggest U.S. makers of semiconductors, increased inventories in the first quarter to the highest levels since 2001 as sales rose. Profit at Dallas-based Texas Instruments more than tripled as sales jumped 34 percent compared with the same period last year. The sales increase was the biggest in at least a decade. ``We expect it to be a good year,'' said Richard Templeton, chief executive at Texas Instruments, in an interview earlier this month. ``We did have some inventory build that we did on purpose anticipating a stronger second quarter. We think that's important to make sure that we can meet customers' demand.'' The company said in April it would spend $1.3 billion on new equipment and other forms of capital expenditures this year, compared with a previous forecast of $1.1 billion.
Durable Goods
Other companies are also boosting spending. Shipments of non- defense durable goods excluding aircraft, a figure used by the government to construct quarterly GDP report, rose 0.7 percent in April following a 3.5 percent gain the previous month, the Commerce Department reported yesterday. ``This leaves the 14 percent growth we are projecting for equipment and software investment in the second quarter well within reach,'' said Henry Willmore, chief U.S. economist at Barclays Capital Inc. in New York. Such spending rose at an 11.5 percent annual rate from January through March, according to the advance GDP estimate. Stronger-than-expected residential and government construction spending will also contribute to the expected GDP revision, said J.P. Morgan's Sharp. An additional $10 billion, at an annual rate, was spent on such projects last quarter and will boost GDP by another 0.4 percentage point, he said. The revision to GDP would have been greater if not for a larger-than-expected deterioration in the nation's trade balance, economists said. The U.S. imported $46 billion more goods and services than it exported in March, the biggest deficit on record, Commerce reported earlier this month.
Fastest in 20 Years
Gross domestic product may expand 4.6 percent for all of 2004, compared with 3.1 percent in 2003, based on the median forecast in a separate Bloomberg News survey. This year's projected growth would be the fastest since 7.2 percent in 1984. The revised figures today will also include the government's initial estimate of first-quarter corporate profits. Profits last quarter rose 27.7 percent compared with the same period last year for the 490 of the Standard & Poor's 500 Index companies that had reported earnings through Tuesday. ``You would have to think the numbers will be impressive,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. Rounding out the forecast, consumer spending, which accounts for 70 percent of the economy, probably grew at a 3.9 percent annual rate compared with the initial estimate of 3.8 percent, according to the survey median. The deflator, a measure of prices tied to the report, probably rose at a 2.5 percent annual pace, the same as estimated in the advance report. ///www.bloombeg.com