GDP Rises 3.2%: Is Recovery Strengthening?

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American consumers are  finally opening up their wallets. Spending by consumers rose by 3.6% in the first three months of 2010, more than double the 1.6% rate of the fourth quarter.  That’s the biggest gain in this gauge in three years. More importantly, it is a subtle but significant shift in the drivers of economic growth. The U.S. economy grew 5.9% in the fourth quarter of last year, but it was largely driven by  companies reducing their inventory liquidation—not the kind of thing that gives you a sustained economic recovery.  Inventories were still a force in the first quarter, but accounted for less of the economy’s growth than it did in the last quarter.

But is this GDP report good enough to sway skeptics that the economy is out of the woods? Probably not, simply because it came largely as expected, there were no blow away improvements (not even the consumer number) and there was still weakness in  housing construction. That said, one area that is showing real gusto is spending by business, known as capital spening on equipment and software.  The folks at High Frequency Economics have been calling for a major improvement in that number, and the actual data even surpassed their bullish forecast,  rising by 13%. HFE expects to see the rate of improvement in that number stay up in the double digits. Bottom line: Business has lots of cash and may finally be deciding it’s time to get rid of its aging computers, etc. That’s a bit of good news in an otherwise middle of the road economic report.

Here’s a link to the Dept of Commerce report: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

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