First-Quarter GDP Rose 3.2% on Consumer and Business Spending

U.S. GDP Factory worker in GM Plant
U.S. GDP Factory worker in GM Plant

The U.S. economy produced more upbeat news with its 3.2% GDP growth in the first quarter, making it three straight quarters of expansion, the U.S. Commerce Department announced Friday. Strong business investment and consumer spending led the increase.

Economists surveyed by Bloomberg News had expected a 3.4% rise, after increases of 5.6% and 2.2% in the third and fourth quarters of 2009, respectively.

Prior to the three-quarter rise, the economy had contracted for four consecutive quarters, including declines of 0.9% and 6.4% in the second and first quarters of 2009, and a 5.4% contraction in fourth quarter of 2008. The U.S government revises its GDP estimate as it receives more information on a respective quarter not available earlier.

Separately, little wage pressure exists in the U.S. economy, the Labor Department said, as the Employment Cost Index rose 0.6% in the first quarter.That was higher than the 0.4% Bloomberg estimate, but employment costs have risen just 1.7% in the past year.

Equipment and Software Spending Soared

The latest report means in the past 12 months, U.S. GDP is up 2.5%. In current-dollar terms (not adjusted for inflation), it rose 4.1% in the first quarter, or by $147.6 billion to an annual rate of $14.6 trillion. For all of 2009, GDP totaled $14.26 trillion, down 1.3% from 2008.

Despite the consecutive quarterly increases in GDP, the nation's most severe contraction since the 1930s resulted in the loss of about 8.6 million jobs.

In the first quarter, business investment in equipment and software soared 13.4%, real exports rose 5.8%, consumer spending increased 3.6%, final sales rose 2.2%, real disposable income was unchanged, local/state government spending declined 3.8% and residential investment plunge 10.9%.

And while the economy is recovering, officially the recession isn't over. The National Bureau of Economic Research is the widely accepted determiner of the economic cycle, and it has said it will wait for more definitive evidence before making that call..

Overall, the first-quarter report is encouraging because it shows consumer spending rising and beginning to supplement other growth engines in the economy. The previous quarter's 5.6% GDP increase came largely from inventory replenishing -- a temporary booster of commercial activity. That's why economists wanted to see consumer spending and business investment make their presence known in the first quarter, and they did. That bodes well for the goal of a self-sustaining U.S. economic expansion.

Originally published