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Economy Grew At 3.2 Percent Pace In First Quarter

The economy grew at a solid 3.2 percent pace during the first quarter of this year as consumers boosted their spending by the most in three years.

The Commerce Department's initial estimate of the economy's performance in the January-to-March quarter, released Friday, provided more evidence that the economy is strengthening. It marked the third straight quarterly gain as the United States heals from the longest and deepest recession since the 1930s. Still, growth was weaker than in the fourth quarter of last year, when the economy grew at 5.6 percent.

Consumers rebounded and powered the first-quarter's growth. They increased their spending at a 3.6 percent pace, the strongest showing since early 2007 - before the economy tipped into a recession. That marked a big improvement from the fourth quarter when consumer spending grew at a lackluster 1.6 percent pace.

Even though consumers aren't spending as freely as they normally do early in strong economic recoveries, they are spending sufficiently to keep the economy expanding.

Looking ahead, analysts believe consumers will be wary of stepping up spending much further. The unemployment rate is high at 9.7 percent and is expected to stay elevated in the months ahead. Sluggish income growth and problems getting loans could restrain shoppers' appetite to spend, they say.

Business, Government Spending Lift Growth

The first quarter's reading on gross domestic product was a tad shy of the 3.4 percent growth rate economists were forecasting. GDP measures the value of all goods and services - from machinery to manicures - produced within the United States. It is the best barometer of the nation's economic health.

Businesses did their part to help the economy grow in the first quarter. Spending by the federal government helped, too.

Spending by businesses on equipment and software rose at a brisk 13.4 percent pace, following an even bigger 19 percent growth rate in the fourth quarter.

The federal government increased spending at a 1.4 percent pace, after being flat in the prior quarter.

Companies started to restock inventories shrunken during the recession, helping boost factory production and GDP.

Exports grew at a slower pace in the first quarter, while imports rose much faster - reflecting stronger demand by U.S. consumers. That meant the nation's trade deficit acted as a small drag to GDP in the first quarter. Slower export growth probably reflects less demand coming from major trading partners in Europe because of the debt crisis there, analysts say.

Problems in the real estate market slowed economic activity.

Builders once again trimmed spending on housing projects, following two quarterly gains. Spending on commercial real estate ventures plunged at a 14 percent pace, the seventh straight quarterly decline.

And state and local governments continued to trim spending, another drag on GDP.

Employment Costs Rise

A separate report from the Labor Department showed that employment costs rose modestly in the first quarter, reflecting an acceleration in the cost of benefits such as pensions.

The Employment Cost Index rose 0.6 percent for the three months ending in March. It was the biggest quarterly gain since a similar 0.6 percent rise in the third quarter of 2008. Economists had expected a smaller 0.5 percent increase.

Even with the slight uptick, employment costs remain subdued, rising by just 1.7 percent for the 12 months ending in March as the worst recession since the Great Depression has kept a lid on employee compensation.

This program aired on April 30, 2010. The audio for this program is not available.

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