Economy Grows at 1.2 Percent Rate
The Associated Press
Jun 29 2001 11:34AM
<<WASHINGTON (AP) - The U.S. economy limped along in the first three months of the year at a pace slightly slower than the government previously thought. The biggest drag on growth came from companies struggling to get rid of their unsold goods.
Gross domestic product - the country's total output of goods and services - grew at an annual rate of 1.2 percent from January to March, according to revised figures released by the Commerce Department Friday.
The weak economy and higher energy prices took a bite out of U.S. companies' profits in the first quarter, which registered their biggest decline in three years.
On Wall Street, the Dow Jones industrial average lost around 13 points in morning trading.
Most economists expected the government's final first-quarter reading on GDP to be unchanged from the 1.3 percent rate of growth estimated a month ago. The government originally reported that the economy grew at a 2 percent rate in the first quarter.
Many analysts believe the economy grew at a barely discernible 0.5 percent rate in the current April-June quarter, though some predict it didn't grow at all or actually slipped into reverse. The government's estimate of second-quarter GDP won't be released until late July.
The second quarter will probably turn out to be the weakest quarter of the year, economists say, and possibly mark the lowest point for the economy since it entered a period of sub-par growth in the second half of last year.
To stave off recession, the Federal Reserve has cut interest rates six times this year. The latest reduction, on Wednesday, was the first to be by a more conservative quarter-point; the other five were by bolder half-points each.
Economists are hopeful the economy will rebound by the fourth quarter of this year as the Fed's interest rate cuts and Congress' tax-cut refunds of up to $600 take hold.
One of the forces that has weighed down the economy is high enery prices, which has dampened consumer and business spending and taken a bite out of corporate profits. Sharp spikes in energy prices preceded the last three U.S. recessions
But in a speech Thursday Fed Chairman Alan Greenspan said the country should be able to escape its current energy problems without long-term harm.
Recent declines in the price of gasoline and natural gas and increased supplies of those fuels give hope that the worst may be over for the country, he said.
Friday's report also showed that the economic slowdown and higher energy costs took a toll on corporate profits. After-tax profits of U.S. corporations fell in the first quarter by 6.2 percent, following a 4.3 percent drop in the fourth quarter. The first-quarter decline was the biggest since the first quarter of 1998, when profits decreased by 8.4 percent.
The 1.2 percent first-quarter growth rate in GDP came after an anemic 1 percent showing in the fourth quarter of 2000.
As demand has flagged, companies have been working hard to whittle down excess inventories of unsold goods. That process subtracted 2.97 percentage points from first-quarter growth.
While paring inventory reduces economic growth, economists say the excess must be cleared before companies can begin ramping up production.
Another drag on first-quarter growth: Business investment in computers and other equipment decreased at an annual rate of 2.3 percent, the second consecutive quarterly drop for a sector that has been one of the pillars supporting the country's record 10-year expansion.
One of the main forces that has kept the economy from tipping into recession is consumer spending, which accounts for two-thirds of all economic activity.
In the first quarter, consumer spending grew at an annual rate of 3.4 percent, up from 2.8 percent in the fourth quarter.
An inflation gauge tied to the GDP rose at an annual rate of 3.2 percent in the first quarter, unchanged from the government's previous estimate. The increase reflected higher costs for services including medical care and for natural gas and electricity.>> |
