Gross domestic product increased at a 3.2% annualized rate in the first quarter of 2010, below economists’ estimates, and core personal consumption expenditures grew at the smallest pace in 41 years, the Commerce Department reported today.
Consumer spending increased 3.6% in the quarter ending March 31, the strongest gain in three years. Consumer spending revived during the quarter as retail sales figures revealed increased demand for electronics and autos.
Consumer spending was also likely aided by personal tax relief provided by the American Recovery and Reinvestment Act of 2009. During the first quarter, ARRA lowered personal taxes by about $121 billion at an annual rate. The tax cuts, combined with a $95 billion increase in government social benefits, boosted disposable income by about $216 billion.
In the business investment sector, strong inventory restocking in the fourth quarter of 2009 helped raise GDP by 5.6% at an annual rate, the largest quarterly gain since 2003.
That inventory investment decelerated in the first quarter. The change in real private inventories added 1.57 percentage points to the first-quarter GDP after adding 3.79 percentage points to the fourth-quarter change.
Nonresidential fixed investment increased 4.1% in the first quarter, down from a 5.3% increase in the fourth. Residential investment declined 10.9% in the quarter, following two back-to-back quarters of gains.
Economists polled by Thomson Reuters expected GDP to increase 3.4%, according to the median estimate.
The Federal Reserve’s preferred measure of inflation, personal consumption expenditures excluding food and energy, increased 0.6% for the quarter, the smallest increase since the first quarter of 1959 when core PCE was flat.
Economists expected core PCE to rise 0.6%, according to the median estimate. The Federal Open Market Committee on Wednesday said inflation is likely to remain “subdued.”
Exports increased 5.8% in the first quarter and imports increased 8.9% -- both decelerated from double-digit gains in the fourth quarter of last year. The trade deficit grew to $503.8 billion in the first quarter from $449.6 billion in the fourth quarter.
Government spending decreased 1.8% in the first quarter, the second consecutive quarterly decline. Spending at the state and local government level fell 3.8%, the third consecutive quarterly decline and the largest since the second quarter of 1981.
