Slower first-quarter growth explains why the Fed trimmed its 2011 forecast to 3.1% to 3.3%, according to its latest so-called central tendency, released yesterday. In January, the central bankers projected 3.4% to 3.9% expansion.
"I would say roughly most of the slowdown in the first quarter is viewed by most on the committee as transitory," Fed Chairman Ben S. Bernanke said at a news conference in Washington following the central bank's policy meeting yesterday.
Household purchases, which account for about 70% of the economy, rose at a 2.7% pace last quarter after a 4% gain in the final three months of 2010.
The gain in consumer spending from January through March compared with a 2% median forecast in the Bloomberg survey. Purchases added 1.91 percentage points to growth.
Government Outlays
Government purchases fell at a 5.2% annual rate, the biggest drop since 1983, after a 1.7% decrease in the fourth quarter. National defense spending dropped at an 11.7% pace, the most since 2005. Federal government spending fell the most in 11 years.
Residential construction fell at a 4.1% rate, while the trade deficit subtracted 0.1 percentage point from GDP, today's report showed.
Manufacturing industries, which account for 11% of the economy, are likely to remain at the forefront of the recovery on growing demand from abroad and the need to replenish inventories.
Inventories last quarter were stocked at a $43.8 billion pace, compared with a $16.2 billion rate in the fourth quarter. Excluding inventories, the economy climbed at a 0.8% annual rate from January through March, the slowest since the third quarter 2009.
Spending on equipment and software climbed at an 11.6% annual last quarter, up from 7.7% the previous three months.
'Sustained Growth'