U.S. economy hit the gas in the first quarter

The U.S. economy expanded at a rate of 3.2 percent in the first quarter, sprinting past analysts’ growth forecasts of 2.3 percent. The Department of Commerce’s initial estimate of gross domestic product — the total value of goods and services — may tamp down fears that economic activity is slowing.

First-quarter growth was fueled by an uptick in state and local government spending, as well as a 3 percent increase in disposable personal income, the Commerce Department said. 

“This is a big, positive surprise – we had penciled in 1.7 percent annualized in our March global economic 0utlook forecast,” said Brian Coulton, chief economist at Fitch Ratings, in an email. “The main message is that private consumption and investment are slowing down only gradually.”

The pace represents a sharp pick-up from the fourth-quarter, when GDP grew 2.2. percent. Analysts surveyed by Bloomberg had expected first-quarter growth of 2.3 percent. 

Despite the better-than-expected numbers, the economy continues to face a number of issues, including a decline in imports, noted Paul Ashworth, chief economist at Capital Economics. After stripping out higher government spending, which stemmed from investments in highways and roads, as well as boosts from trade and inventories, growth in the first three months of the year was only 1 percent, he said.

“Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year-end,” Ashworth added in a research note.