* Inventories, consumer spending to boost growth
* Business spending on equipment, software seen slower
* Report could overstate economy's strength
* Too soon to gauge impact of U.S. spending cuts
By Lucia Mutikani
WASHINGTON, April 26 U.S. economic growth
probably gained steam in the first quarter on strong consumer
spending, but the momentum is already ebbing and could slow
further as the impact of automatic government spending cuts kick
Gross domestic product likely expanded at a 3.0 percent
annual rate, according to a Reuters poll of economists, after
growth nearly stalled at 0.4 percent in the fourth quarter.
Part of the expected acceleration in activity will reflect
farmers filling up silos after a drought last summer decimated
crop output. Removing farm inventories, growth would probably be
around a mediocre 2 percent rate, economists said.
"If we do come in near consensus, it will be a false
positive reading for the economy," said Robert Dye, chief
economist at Comerica in Dallas. "It is still in that
weak-to-moderate growth range of around 2 percent and is still
struggling to maintain forward momentum."
The Commerce Department will release the first-quarter GDP
report on Friday at 8:30 a.m (1230 GMT).
Given signs the economy has weakened in recent weeks, the
GDP data will probably not get much play in U.S. financial
markets. It is not expected to carry a lot weight at next week's
Federal Reserve policy meeting either. The U.S. central bank is
widely expected to keep purchasing bonds at a pace of $85
billion a month.
"The reality is the deceleration in the data that we have
seen in the last weeks is going to be at the forefront,
especially when you look at the Fed meeting next week," said
Jacob Oubina, a senior U.S. economist at RBC Capital Markets in
New York. "They are going to mark down their economic
assessment. The second quarter is tracking closer to 1 percent."
Data ranging from employment to retail sales and
manufacturing weakened substantially in March after robust gains
in the first two months of the year. There are indications the
weakness persisted into April.
The GDP report is expected to show contributions to growth
from all areas of the economy, with the exception of government,
trade and investment by businesses in offices and other
Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, is expected to have increased at
around a 3 percent pace, which would be its fastest since at
least the first quarter of 2011. It grew at a 1.8 percent rate
in the fourth quarter.
Much of the anticipated gains in first-quarter spending are
expected to come from automobile purchases and outlays for
utilities, which were boosted by unusually cold temperatures.
Consumers managed to step up their spending despite the return
of a 2 percent payroll tax and higher gasoline prices.
Another big contributor is expected to be a much faster pace
of inventory accumulation. Inventories are expected to add as
much as a full percentage point to GDP growth after chopping off
1.5 points from output in the final three months of last year.
While business spending on equipment and software likely
slowed, it is still expected to have added to growth.
Economists caution that it is too early to blame the cooling
in business investment and other more recent signs of economic
softness on the $85 billion in mandatory government spending
cuts, known as the sequester, that began on March 1.
"I don't think we are going to feel the full drag of that
until the third quarter, so we got a ways to go before we fully
understand what the full effects of fiscal tightening are," said
Homebuilding is expected to have marked an eighth straight
quarter of growth, though the pace probably moderated from the
fourth quarter. Housing added to growth last year for the first
time since 2005 and its recovery should help ensure the economy
does not contract.
The stronger dollar during the quarter likely weighed on
export growth, with the resulting trade deficit being a drag on
output. The dollar strengthened about 4 percent on a
trade-weighted basis from January through March.
"This is coming at a time when the global economic recovery
is beginning to show signs of strain," said Millan Mulraine, a
senior economist at TD Securities in New York.