Consumers, farmers seen boosting U.S. first-quarter growth

WASHINGTON Tue Apr 23, 2013 4:12pm EDT

WASHINGTON (Reuters) - U.S. economic growth likely rebounded in the first quarter after almost stalling at the end of 2012 as Americans shrugged off higher taxes and stepped up spending, but the trend is likely temporary.

Gross domestic product probably grew at a 3.0 percent annual rate, quickening from the fourth quarter's pedestrian 0.4 percent pace, according to a Reuters poll of economists.

The anticipated faster growth pace is also a reflection of a rebound in farm inventories decimated by last summer's drought.

"It's a good start to the year, but I don't think it's going to be the norm," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "We are already seeing evidence the economy is slowing down."

The Commerce Department will release the fourth-quarter GDP report on Friday at 8:30 a.m. It will probably not get much attention from U.S. financial markets given signs that momentum waned as the quarter ended.

As recently as two weeks ago, first-quarter GDP forecasts topped a 4 percent rate, but they were slashed after a raft of weak March data, including retail sales. In addition, business inventories rose only 0.1 percent in February after increasing by the most in more than 1-1/2 years in January.

That has some economists bracing for a weaker reading.

"There is a good chance it could be weaker still because the economy lurched into a lower gear during the quarter," said Chris Low, chief economist at FTN Financial in New York.

Growth is expected to be driven by consumer spending, which is projected to have expanded at its quickest pace since the first quarter of 2011. Consumer spending accounts for more than two-thirds of U.S. economic activity.

While there was little indication the end of a 2 percent payroll tax cut caused households to hold back on consumption in the first two months of this year, that changed in March with the drop in retail sales.

Inventory accumulation is expected to add as much as a full percentage point to GDP growth in the first quarter after a slow pace of restocking chopped off 1.5 points in the prior period.

"Much of this lift to growth should be due to farm inventories, which weighed down growth at the end of 2012 because of severe drought conditions," said Daniel Silver, an economist at JPMorgan in New York.

"Away from the farm data, nonfarm inventories should only be a slight positive for growth."

Business spending on equipment and software likely slowed, with investment in residential structures contracting. Economists caution that it is too early to blame the step back on $85 billion in mandatory government spending cuts, known as the sequester, which started to kick in on March 1.

The housing market likely remained a bright spot during the first quarter. However, spending on residential construction is expected to have slowed somewhat in the first three months of this year from the prior quarter.

Homebuilding added to growth last year for the first time since 2005 and its recovery should help ensure the economy continues to expand, albeit at a modest growth pace this year, despite the fiscal headwinds.

Exports are expected to have been a drag on growth in the first quarter. Government spending was likely weak, but not at the same scale as in the previous quarter.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)

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