INSTANT VIEW 4-Q1 GDP, April ADP surprise on high side

NEW YORK (Reuters) - The economy grew at a slightly stronger pace than forecast as 2008 began, helped by inventory-building that tempered a steadily deteriorating housing sector and less vigorous consumer spending.

ADP NATIONAL EMPLOYMENT:

U.S. private-sector employers unexpectedly added 10,000 jobs in April according to a private report by ADP Employer Services released on Wednesday.

KEY POINTS:

GDP: * The Commerce Department said GDP expanded at a 0.6 percent annual rate in the first quarter, matching the fourth quarter's advance and handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters. * GDP is the broadest measure of total economic activity within U.S. borders and, despite a better-than-expected first-quarter performance, details of the report reflect widespread weakening that many analysts fear will lead to a recession. * Consumer spending that fuels two-thirds of economic activity through consumption of goods and services, grew at the weakest rate since the second quarter of 2001, when the economy was last in recession. It rose at a 1 percent rate after growing 2.3 percent in the fourth quarter. * The weakening in an already distressed housing sector was even more striking. Spending on residential construction plunged at a 26.7 percent rate - a ninth straight quarterly decline and the biggest for any three months since the end of 1981.

ADP: * Economists' median expectation was for a drop of 60,000 jobs in April, according to a Reuters poll. * ADP's March figure was revised lower to an increase of 3,000 from the increase of 8,000 originally reported.

COMMENTS:

ANDREW RICHMAN, MANAGING DIRECTOR OF PERSONAL ASSET

MANAGEMENT, SUNTRUST, WEST PALM BEACH, FLORIDA:

GDP/DEFLATOR: "We saw GDP mostly up on inventory. Some of inflation numbers looking better-than-expected. It's an overall decent number posted here. But the consumers are still struggling here obviously."

"The Fed is not going to focus on any single number. We do think they are going to lower by a quarter point and to take a pause from here for awhile."

"Inflation is in check right now with the consumers cutting back. With inflation cooling here, that's why we are seeing a bounce back in bonds here, especially on the long-end."

ADP NATIONAL EMPLOYMENT REPORT: "The ADP number is always volatile. There are some industries holding up better than expected in this housing- and consumer-driven slowdown. It did turn equity market around there."

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY

ECONOMICS, VALHALLA, NEW YORK:

GDP: "Housing investment plunged at a 26.7% rate, the biggest drop to date, but non-res investment dipped too, for the first time. The decline was only 2.5% but this marks the start of a long, steep decline. Exports rose 5.5%, as we expected, but imports were a bit stronger, up 2.5%. Inventories were much weaker than the monthly data implied for the second straight quarter, rising only $1.8B. Overall, soft and softening, with worse to come in the wake of the collapse in consumer confidence."

ADP: "Plugging the ADP data into our model and allowing for the strong tendency for the official data to undershoot in recent months, we reckon Friday's payroll number will be about -70K, compared to our prior forecast of -100K. This is still easily enough to keep the unemployment rate heading higher. More broadly, note that the ADP survey is volatile from month-to-month. The three-month average is a better guide to the trend than the monthly numbers, and it has now dropped to -2K. As recently as January, it stood at 115K. The decline has been swift and we expect the numbers to deteriorate much further over the next few months."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST AT CREDIT SUISSE,

IN NEW YORK:

ADP: "ADP was stronger although ADP has been consistently overestimating. The last five months the average overestimation has been about 100,000. So I would think the market sort of dismissed ADP."

"I think the details of the GDP are a little bit softer in terms of domestic demand than the headline."

"It looks like most of the upside in GDP came from strength in inventory build which is not good looking forward, and in international demand, which is a consistent theme through the earnings season that we keep seeing.

"We had an increase in inventories, which increases GDP but looking forward that is an overhang which should weigh on GDP. So you'll produce less next quarter because you have too much inventory.

"Initially after the data came out we had bond yields spike higher and now they've come right back to where they were and I think that is a reflection of people taking the time to look at the details...which aren't terribly strong."

MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO,

SAN FRANCISCO:

"There are parts of the economy that going down hard, creating issues, but between the export growth and the inventory rebuild after the fourth quarter, it shows there is sufficient upside.

"The Fed still wants to do the 25 basis points... There's an unspoken commitment to do 25.

"The key here is that a pullback is more shallow than expected... You have to ask what is the economy doing outside of housing? It's been growth... When you take away the housing and some of the close effects on construction, carpets, furniture, etc., you then see that all the businesses outside that sector are actually doing 0K, they're doing fine.

"I'm looking at this number as a real big positive."

PIERRE ELLIS, SENIOR GLOBAL ECONOMIST, DECISION ECONOMICS,

NEW YORK:

GDP: "This is not going to disrupt things at the Fed today. It's good that the contribution from inventory is positive. But there's no overbuilding. It does not put a cloud in the second quarter which is gloomy enough already."

"The overall price picture is lower than consensus. On a core basis, it look's quite good. Current conditions of the production side of the economy are not generating inflation."

"The outlook on the consumer side is still cloudy. There is no assurance that consumer spending is even steady."

ADP: "The ADP estimate has really diverge from the government payroll survey in recent months. We are still looking a 80,000 decline."

MICHAEL MALPEDE, SENIOR CURRENCY STRATEGIST, MAN GLOBAL

RESEARCH, CHICAGO:

ADP & GDP: "On the surface, the ADP and GDP numbers are better than expected. But I wouldn't read too much into them. I think both reports are overstating the health of the U.S. economy at this point. The data may give the Fed a bit more cover if it wants to pause today, but that's about all. As for currencies, the main event risk of the day is still the Fed decision, so people are waiting for that."

VICTOR PUGLIESE, DIRECTOR OF LISTED EQUITY TRADING,

BROADPOINT SECURITIES, SAN FRANCISCO:

GDP: "It was a little better than people expected, and I think it's a little bit of a pleasant surprise. The consumption number was a little bit better, but you don't see (stock) futures rallying terribly because it's not a future number. It's rear-view look, and not a front-view look. The main thing everyone's going to be looking for today is the Fed. I don't expect the market to do very much ahead of that decision. Everyone is looking for that quarter-point cut, and I don't see any reason for that (to change)."

CARY LEAHEY, ECONOMIST AND MANAGING DIRECTOR, DECISION

ECONOMICS, NEW YORK:

GDP: "First-quarter GDP was a little better than expected, but well within the range of expectations with an increase of 0.6 percent. Consumer spending was up 1.0 percent, there was a small decline in capital spending, a very modest increase in inventories, a big drop in housing, and a further improvement in foreign trade.

"The market is arguing that the economy has been hit by a lot of body blows, but still managed to grow in the first quarter. This is consistent with the market's view that this recession, despite all the fundamental negatives, could be short and shallow. This is also not a report where the upside surprise to the first quarter may have to be worked off in the second quarter. If there are problems in the U.S. economy, it's not due to a large inventory overhang.

"On the inflation and wage story, in the GDP report there were no major surprises on inflation. The Employment Cost Index (ECI) was pretty much expected as well, in line with past trends. The good news is that wages and compensation aren't accelerating, but the bad news is that they aren't accelerating to offset some of the headwinds from the credit crunch and high oil prices."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE MANAGEMENT,

BOSTON:

ADP: "ADP is a surprise -- though to be honest I don't really have a lot of faith in this number, the one that really counts is the one on Friday. But, all things being equal, this is a surprisingly strong number that is all the more reason that the Fed won't cut more than 25 basis points today."

STEPHEN MALYON, SENIOR CURRENCY STRATEGIST, SCOTIA CAPITAL,

TORONTO:

GDP: "A little bit strong than market expectations but the strength is slightly misleading as inventories has accounted for 0.8 percent of the rise. Final domestic demand actually fell 0.4 percent underscoring the deterioration in the U.S. economy. When the dust settles it is probably bearish for the U.S. dollar."

MARKET REACTION: * BONDS: U.S. Treasury debt prices turn up after initial dip after GDP tops estimates. * CURRENCIES: U.S. dollar rose. * STOCKS: U.S. stock index futures rose. * RATE FUTURES: U.S. short-term interest rate futures point to 82 percent chance of a Fed rate cut later on Wednesday.