Consumer spending probably helped pace U.S. growth: U.S. economy preview

The biggest gain in consumer spending in a year probably helped the U.S:economy to keep expanding during the first quarter despite rising fuel costs.

The GDP, Gross Domestic Product, rose by 2.5 percent after increasing 3 percent in the preceding 3 months.This is according to a survey of 72 economists ahead of the Commerce Department’s April 27th report. Consumer purchases climbed by the most since 2010; consumer purchasing accounts for around 70 percent of the U.S. economy.

Strong job creation and the warmer winter helped in overcoming the higher gas prices experienced in the United States. Also, less driving help to boost walk-in traffic for many retail shops. However, the pace of growth seems to not be enough to push the fed to increase their almost 0 percent interest rates. This will be a positive effect on the U.S: economy. The current plan that the Federal Reserve has involves keeping interest rates the same until 2014.

“Consumer activity really accelerated last quarter,” said Christopher Low, chief economist at FTN Financial in New York. “The increase in retail sales we saw was really terrific, and it came after three months of almost no spending growth at all.”

Ben Bernanke stated that the economy still must expand faster in order to suppress the high unemployment rate that is currently experienced. The Federal Reserve is to meet on April 24th.

Federal reserve meeting

As the current Fed rate is near zero,, the Fed will “reiterate that it is likely to remain at that level into 2014 because of sub-par economic growth and elevated unemployment,” Steven Wood, president of Insight Economics LLC in Danville,California, said in a note to clients.

Gasoline Prices

Employment and income gains helped consumers in dealing with the higher gas prices. The price per gallon increased by 63 cents to $3.93 from the beginning of the year to the end of March. This was the largest increase in 10 months.

Monetary Policy

Fed officials for the moment are holding off on initiating another round of stimulus via monetary methods. This may change if the economy begins to seriously falter. But for now a QE3 is not in the foreseeable future.

“The recovery may be finally establishing a somewhat firmer footing,” Federal Reserve Bank of New York President William C. Dudley told business leaders in Syracuse, New York, on April 12. Even so, “it is still too soon to conclude that we are out of the woods,” he added.

The Fed will issue a statement about their monetary policy plans along with projections for growth, unemployment and inflation on April 25.

Housing Stabilizing

Housing may be beginning to stabilize. According to a report from the Commerce Department on April 24th, new home sales rose by 1.6 percent up to an annual rate of 318,000 through March.Information on pending home sales from the National Association of Realtors showed an increase of 1 percent.

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