Economy Stronger Than Ever?
Are rising interest rates hurting the economy? If they are, this year’s first quarter growth certainly didn’t show it.
The U.S. economy expanded 5.6 percent in the first quarter of 2006, even more than previously estimated and more than triple the growth rate of last quarter, according to the Labor Department. The economy grew at the fastest rate in 2½ years last quarter.
With the Federal Reserve widely expected to raise rates another quarter-point today to combat inflation, this news should bolster their resolve.
"There's enough strength in the economy to warrant the Fed's continuing tightening," David Wyss, chief economist of Standard & Poor's, told CBS Radio News. "We do expect the Fed to raise rates a quarter point this afternoon and frankly, I don't think that's the end of it. I think we'll see at least one more move after that.
Strong spending by consumers and businesses led the economy’s growth. Consumers increased spending by 5.1 percent, compared to a small increase of just 0.9 percent in the previous quarter.
Businesses loosened the purse strings, too. Spending on equipment and software grew by 14.8 percent, compared to a small 5 percent rate last quarter.
The recovery effort from Hurricane Katrina helped spur spending in the first quarter, in contrast to the impact it had on spending in the fourth quarter.
"The big news in the first quarter was the consumer basically bouncing back from a very weak fourth quarter, particularly car sales, but then also, we had unusually good weather, which helped housing and construction generally," says Wyss. |
