By Glenn Somerville WASHINGTON (Reuters) - A buildup in inventories kept the economy afloat in the first quarter despite the weakest consumer spending since 2001 and the biggest drop in home building in more than 26 years, a government report showed on Wednesday.
The Commerce Department said gross domestic product or GDP expanded at a 0.6 percent annual rate in the first quarter, matching the fourth quarter's advance and handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters. Some economists said the report suggested the U.S. economy was on a bit firmer ground than had been thought, but others were still bracing for worse times ahead as businesses ratchet back production further to try to sell off inventories. "We expect that the coming inventory correction will send growth into negative territory, save a truly heroic effort by the U.S. consumer to spend their way out of the current malaise with their $600 rebates," said Joseph Brusuelas, U.S. chief economist at IDEAglobal in New York. Tax rebate checks that are part of a government economic stimulus program began to flow this week to upwards of 100 million Americans. Government bond prices initially dipped on the stronger-than-expected growth figure but later recovered as investors focused on weakening consumer spending. Stocks opened higher. Separately, ADP Employer Services said U.S. private-sector employers added 10,000 jobs in April, another surprise on the upside since forecasts had been for 60,000 jobs to be lost. The reports were issued just before Fed policy-makers began a second day of deliberations that is expected to result in a decision to trim official interest rates another quarter percentage point to try to keep expansion going. Continued... <www.reuters.com/article/ousiv/idUSN2932297520080430>
