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growth accelerated in u.s. economy

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    Growth Accelerated as Consumers Splurged: U.S. Economy Preview
    April 23 (Bloomberg) --

    The U.S. economy bounded ahead in the first quarter as the warmest January on record propelled consumer spending and construction, economists said a report this week will show.

    Gross domestic product, the sum of all goods and services produced, probably rose at an annual rate of 5 percent from January through March, the most in more than two years, according to the median estimate of economists in a Bloomberg News survey. The growth rate compares with a 1.7 percent pace in the previous three months.

    Retailers rang up their biggest sales gains in more than four years in January and builders broke ground on more homes than at any time in three decades as Americans took advantage of the unseasonably warm temperatures. Federal Reserve Chairman Ben Bernanke will testify before Congress on the economic outlook this week as economists forecast rising energy prices and a slowing housing market will cool growth.

    ``Everyone knows we had a great first quarter, but the critical point now is what happens next,'' said Carl Riccadonna, an economist at Deutsche Bank Securities in New York. ``It really looks like the slowdown in housing is starting to take place.''

    The Commerce Department is scheduled to issue the GDP report on April 28. Last quarter's projected growth rate would be the strongest since the third quarter of 2003.

    The report is also projected to show that consumer spending, which accounts for about 70 percent of the economy, grew at an annual rate of 5 percent in the first quarter, also the most since the third quarter of 2003, after growing at a 0.9 percent pace the previous three months.

    Retail Sales

    The warmest January in more than a century of record keeping spurred a 3 percent surge in retail sales that month, benefiting auto dealers and furniture and clothing stores.

    Retail sales then dropped 0.8 percent in February, and rose 0.6 percent last month, putting spending on firm footing heading into this quarter, economists said. Still, near-record gasoline prices will cut into consumers' paychecks and smaller increases in home prices will limit the amount of equity homeowners can tap when refinancing, leading to smaller spending gains for the rest of the year, forecasts show.

    Consumer spending will rise at an annual rate of 3 percent from April through June and the economy will expand at a 3.3 percent pace, according to the median forecast of economists surveyed earlier this month.

    Sales of previously owned homes dropped 3 percent last month to an annual pace of 6.7 million, economists expect a report April 25 from National Association of Realtors will show. That would cap the slowest quarter for sales in two years.

    New Home Sales

    A report the next day from the Commerce Department is projected to show that sales of new homes rose 2.8 percent to a 1.11 million pace last month, recovering from an 11 percent drop in February that was the biggest in nine years.

    Rising gasoline prices are tempering consumer optimism. The Conference Board's consumer confidence index, due April 25, will fall to 106.2 this month from an almost four-year high of 107.2 reached in March, according to the survey median.

    A similar measure from the University of Michigan, scheduled for released April 28, edged up to 89 from 88.9 in March, according to the median forecast. The final reading would be down from an 89.2 preliminary estimate issued earlier this month.

    One reason economists believe growth won't slow even more this quarter is that businesses continue investing in new equipment and factories.

    Business Investment

    ``Corporate balance sheets are in great shape and we look for business investment to keep the economy going forward as consumer spending winds down after an impressive run over the last few years,'' said Deutsche Bank Securities' Riccadonna.

    Orders for durable goods in March probably rose 1.7 percent, after increasing 2.7 percent the previous month, an April 26 report from the Commerce Department is expected to show. Bookings excluding volatile orders for transportation equipment rose 0.9 percent last month after falling 1.2 percent in February, according to the median forecast of economists surveyed.

    Still, the jump in fuel costs and higher borrowing costs are worrying business executives.

    ``Demand still seems to be pretty robust,'' Jim Young, chief executive officer of Union Pacific Corp., the biggest U.S. railroad, said in an April 20 interview. ``I am a little concerned about interest rates and the high costs of diesel fuel.''

    Beige Book

    Fed policy makers will be poring over the central bank's regional survey of economic activity for hints on whether rising fuel prices are causing demand to slacken or whether businesses are successfully passing the higher costs along to customers. The survey, known as the Beige Book for the color of its cover, will be released April 26, the day before Bernanke's congressional testimony.

    The central bank's policy-making Federal Open Market Committee next meets on May 10. The group is expected to raise its target rate by a quarter percentage point to 5 percent, according to the median forecast of economists. It would be the 16th consecutive increase.

    Investors will be listening to Bernanke's testimony for clues on whether that rate increase is likely to be the last.

    In other reports this week:

    First-time claims for unemployment benefits rose to 305,000 in the week ended yesterday from 303,000 the previous week, a Labor Department report April 27 is projected to show.

    Labor costs last quarter rose 0.9 percent last quarter, the biggest increase in more than a year, the Labor Department is expected to report April 28.

    An index of manufacturing in the Chicago area probably fell to 58 this month from 60.4 in March. Readings greater than 50 signal expansion.

    Bloomberg Survey

    Date Time Period Indicator BN Survey Prior
    04/25 10:00 April Confidence-Conf. Board 106.2 107.2
    04/25 10:00 March Home Resales 6.7M 6.91M
    04/25 10:00 March Richmond Fed. Manf. 10.0 21.0
    04/26 8:30 March Durable Goods Orders 1.7% 2.7%
    04/26 10:00 March New Home Sales 1.11M 1.08M
    04/27 8:30 4/22 Initial Jobless Claims 305K 303K
    04/28 8:30 1Q Employment Cost Index 0.9% 0.8%
    04/28 8:30 1Q A Gross Domestic Product 5.0% 1.7%
    04/28 8:30 1Q A GDP Price Index 2.7% 3.5%
    04/28 10:00 April Chicago Purchasers 58.0 60.4
    04/28 10:00 April F Confidence- U. of MI 89.0 89.2

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