Economy Grows at 6.1 Pct. Rate
WASHINGTON, Jun 27, 2002 (AP Online via COMTEX) -- The economy sprang back from
last year's recession, growing at an annual rate of sizzling 6.1 percent in the
January-March quarter, the strongest showing in more than two years.
The latest reading on gross domestic product - which measures the total output
of goods and services produced within the United States - showed the economy
grew more briskly during the first quarter than previously thought, the Commerce
Department reported Thursday.
The government first estimated that GDP for the period grew at a 5.8 percent
pace and then revised that down to 5.6 percent growth rate a month ago.
While good news, Thursday's report shows where the economic recovery has been.
Federal Reserve Chairman Alan Greenspan and his colleagues are focused on where
it is going.
Citing uncertainties about the recovery's vitality, Fed policy-makers left
short-term interest rates at 40-year lows Wednesday, the fourth time this year
they opted to hold rates steady.
Recent economic reports confirm that recovery has lost steam. Some economists
believe GDP will grow at a rate of just 2.5 percent or lower in the current
quarter.
With interest rates remaining low, consumers might be motivated to spend more
and businesses motivated to boost investment in new plants and equipment. Both
are crucial ingredients in the recovery.
A startling stream of accounting scandals and worries about jobs helped push
Americans' confidence in the economy down in June to a four-month low.
Economists worry that fallout from the latest accounting scandal, involving
telecommunications giant WorldCom, could not only jolt confidence but also chill
consumers' willingness to spend and make companies even more wary of making big
commitments, including capital investments and hiring.
In the first quarter, economic growth received its biggest boost from slower
inventory liquidation by businesses, which added 3.39 percentage points to GDP.
That's a turnaround from the 2.16 percentage-point reduction from GDP in the
fourth quarter, a key source of the economy's weakness. At that time, companies
throttled back production and focused on getting rid of excess stocks of unsold
goods, which piled up during the slump.
Consumers, whose spending accounts for two-thirds of all economic activity, also
gave a lift to the economy in the first quarter. Consumers increased spending at
a 3.3 percent rate. But that was down from a brisk 6.1 percent pace in the
fourth quarter.
Greenspan worries that consumers who spent throughout the recession won't have a
lot of pent-up demand coming out of it, making for a less than sizzling
recovery. U.S. shoppers showed less vigor in May.
Business investment in new equipment and plants continued to fall in the first
quarter, but at a slower pace. That investment declined at an annual rate of 6.2
percent in the first quarter, compared with a 13.8 percent rate of decrease in
the fourth quarter.
The first-quarter drop wasn't as deep as the 8.2 percent rate of decline
reported a month ago, a factor in the stronger overall GDP showing. Economists
say that a turnaround in capital spending is a necessary ingredient to a full
recovery for the national economy.
Another factor in the upward revision to GDP: the U.S. trade deficit was less of
a drag on the economy than estimated a month ago. The deficit shaved 0.75
percentage point from first-quarter GDP, versus the 1.06 percentage-point
reduction previously thought.
Thursday's report also showed that after-tax profits of U.S. corporations rose
at a rate of 1.4 percent in the first quarter, an improvement from the 10.6
percent rate of decline in the previous quarter.
The 6.1 percent growth rate for first quarter GDP was the strongest since the
fourth quarter of 1999 when GDP rose at a 8.3 percent rate.
The January-March performance was remarkable given the economy actually shrank
at a 1.3 percent rate in the third quarter of 2001. GDP grew at a below-par 1.7
percent rate in the fourth quarter.
By JEANNINE AVERSA
Associated Press Writer
Copyright 2002 Associated Press, All rights reserved
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