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Ahead of the Bell: US economy-GDP

May 27, 2016

WASHINGTON (AP) — The Commerce Department issues its revised estimate for economic growth that occurred between January and March at 8:30 a.m. Eastern.

REVISED HIGHER: Economists believe growth, as measured by the gross domestic product, will be revised to an annual rate of 0.8 percent in the first quarter, according to a survey by the data firm FactSet.

STRONGER GROWTH: The Friday report marks the government’s second of three looks at first-quarter GDP. A month ago, the government estimated growth at 0.5 percent. That was the weakest performance in two years, since the economy contracted at an annual rate of 0.9 percent in the first quarter of 2014.

Even with a small upward revision, growth at the beginning of the year would be exceptionally weak, extending a pattern seen through much of this recovery, where activity nearly stalled out in the first quarter only to rebound in the spring.

Economists are forecasting a repeat of that pattern this year. They expect growth to rebound to around 2 percent in the current April-June quarter and strengthen further as the year progresses. Strong employment growth should help fuel gains in consumer spending, which accounts for 70 percent of total economic activity.

Employers added another 160,000 jobs in April, a solid gain even if it was down from an average increase of 243,000 in the prior six months. The unemployment rate remained at a low 5 percent, down by half from the 10 percent high hit in the fall of 2009 when the economy was struggling to emerge from the worst economic downturn since the 1930s.

The U.S. economic expansion will celebrate its seventh birthday next month, making it the fourth longest recovery since World War II. But it has also been the slowest, averaging modest annual growth of 2.1 percent.

“While that growth is nothing to write home about, we are relatively better off than many of our trading partners,” said Sung Won Sohn, an economics professor at California State University, Channel Islands.

Financial markets went into a nosedive at the beginning of the year, dragged down by worries about global growth and a sharp slowdown in China, the world’s second largest economy. There were serious concerns that the U.S. economy, because of stalling global growth, could be headed back into recession.

Since then, markets have recovered all their early-year losses. Recent data has shown that key sectors of the economy, from consumer spending to housing, have improved.

The Federal Reserve surprised investors last week when it released minutes of its April meeting showing that Fed officials believed that a rate hike in June was likely if the economy kept improving. The Fed raised a key rate in December by a quarter-point but has left rates unchanged so far this year.

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