<US Economy> Continue to defy the aging process-A wondrous economy-Sinai
Lee:
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FOCUS-U.S. economy roars into 99 on spending binge
By Glenn Somerville
WASHINGTON, April 30 (Reuters) - The strongest consumer spending in a decade helped expand the U.S. economy in the first quarter far faster than expected, the government said on Friday, heightening fears of higher interest rates.
Gross domestic product, the broadest measure of goods and services output within U.S. borders, shot ahead at a 4.5 percent annual rate in January through March, down only moderately from a sizzling 6.0 percent in the fourth quarter last year, the Commerce Department said.
''The economy continues to defy the aging process,'' said economist Bill Cheney of John Hancock. ''The only discernible weakness is the trade deficit and this has merely slowed the economy from warp speed.''
The report sent bond prices reeling on fears it could prompt the Federal Reserve to raise interest rates as a damper on potential price rises.
The bellwether 30-year U.S. Treasury bond dropped a full point by mid-morning as its yield -- which moves in the opposite direction from its price -- kicked up to 5.59 percent from Thursday's close of 5.53 percent.
Stock markets, however, shrugged off interest rate fears. The Dow Jones Industrial Average went into fresh record territory on the latest indication that the economy's expansion, now in its ninth year, had the legs to keep running.
The report said that prices were rising, further felling fears that the Fed would raise rates.
Prices, measured by the GDP price index, rose 1.4 percent in the first quarter, a pickup from a 0.8 percent rise in the closing quarter last year. It was the strongest increase in nearly two years.
But Allen Sinai, an economist with Primark Decision Economics Inc. in Boston, said that price measure was misleading because it excluded falling import prices. He noted another gauge -- the price index for domestic purchases -- rose only 1 percent in the first quarter after a 0.9 percent fourth-quarter gain.
''This is a wondrous economy. Life really is beautiful,'' Sinai said. ''We're seeing super-strong growth with still very low inflation. The bottom line is that the U.S. economy continues to grow like gangbusters, suggesting good job growth and rising profits.''
Consumers provided the driving force behind first-quarter growth, draining savings to boost spending at a 6.7 percent annual rate in the first quarter. It was the strongest advance in personal consumption spending since 1988 and up from a 5 percent increase in the fourth quarter of last year.
President Clinton welcomed the hearty GDP growth, saying in a statement that ''strong growth, high investment, low inflation, and low unemployment are a winning combination'' that were enabling the economy ''to grow steady and strong.''
A separate report from regional purchasing managers in Chicago showed a quickening pulse for the nation's manufacturing heartland. The Chicago Purchasing Management Index shot up to 63.3 in April from 57 in March. It also showed rising prices paid for the goods used in manufacturing.
Some analysts said unexpectedly vigorous first-quarter growth was likely to make Federal Reserve policymakers uneasy about the potential for inflation.
''Will this be enough to induce the (U.S. Federal Reserve) to raise interest rates now? I don't think so,'' said economist Kathryn Kobe of advisory firm Joel Popkin and Co. ''But the concern is this rate of growth will leave us vulnerable to more inflation later on.''
Sinai said the consumer spending was too strong to be sustainable and added special factors like income tax refunds -- many paid earlier than usual because of increased electronic filing -- and a surge in new-car buying partly accounted for the first-quarter binge.
He predicted GDP growth would moderate to a 3-1/2 to 4 percent rate in the second quarter and ease to around 3 percent in the second half of this year. But he cautioned that the Federal Reserve could decide to raise rates if oil and energy costs kept rising.
Commerce said personal savings -- measured as the proportion of earnings devoted to bank accounts and other savings -- shrank at a 0.5 percent rate or by $30.9 billion in the first quarter after being flat in the fourth quarter. It was the weakest performance for the quarterly savings rate since the government began compiling the figure in 1946 and meant consumers were borrowing heavily to keep shopping.
The strong GDP report pushed the value of the dollar sharply higher against the struggling euro currency on the latest evidence that the United States continues to outperform economies in continental Europe comfortably.
The euro, which was launched in January, fell to a lifetime low of $1.0557 in early U.S. trade before recovering slightly. |
