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Fri, 25 Jun 1999, 9:06am EDT
U.S. GDP Grew at Higher-Than-Expected 4.3% Rate in 1st Qtr, Up From 4.1%
By Vincent Del Giudice and Terry Barrett
U.S. GDP Grew at Revised 4.3% Rate in 1st Qtr, Up From 4.1%
Washington, June 25 (Bloomberg) -- The U.S. economy grew at
a faster pace than previously estimated in the first quarter and
corporate profits posted their biggest gain since 1995. Inflation
rose at its fastest pace in almost two years.
First-quarter gross domestic product rose at a 4.3 percent
annual rate, up from the government's previous estimate of a
4.1 percent growth rate, the Commerce Department said today.
Analysts expected a 4.2 percent gain.
Higher exports and lower imports than previously estimated
accounted for the revision in the latest GDP reading. The overall
gain continued to be led by the largest increase in consumer
spending since the first quarter of 1988.
''The U.S. economy has an excellent foundation for growth,''
said William Sullivan, an economist at Morgan Stanley Dean Witter
in New York, before today's report.
After-tax corporate profits rose at a 6.2 percent annual
rate in the first quarter, the largest gain since a 7.9 percent
rise in the first quarter 1995, and the implicit price deflator
rose at a 1.6 percent pace, its fastest since a 1.6 percent
increase in the second quarter 1997.
Expectations of a Federal Reserve interest rate increase,
which have pushed borrowing costs higher in the past six weeks,
will probably blunt some of the economy's force in the months
ahead.
''We expect decent growth for the rest of the year but not
the kind of growth we saw earlier in the year because of higher
mortgage rates,'' said Cynthia Latta, an economist at Standard &
Poor's DRI in Lexington, Massachusetts, before today's report.
''That's going to take a bite out of consumer spending. ''
In the second quarter, which ends June 30, the economy
probably grew at a 3.7 percent annual rate in the second quarter
of 1999, according to the average of 23 forecasts in a Bloomberg
News survey. Figures on second-quarter growth are scheduled for
release on July 29.
Analysts expect the second quarter gain to be led by a 4.1
percent increase in personal consumption expenditures. If that
happens, it would mark the sixth consecutive quarter with at
least a 4 percent reading, the longest such streak since the
fourth quarter of 1971 through the first quarter of 1973.
Record Expansion
Economists have been revising up their forecasts as more
data becomes available on the state of the economy. At the end of
1998, economists expected second quarter GDP to grow at a 2
percent pace, and only three months ago the expectation was 2.8
percent.
The expansion, which began in 1991, is already the longest
in peacetime. If it lasts into January, which it's The only
longer expansion, between 1961 and 1969, coincided with the
buildup for the Vietnam War, according to the National Bureau of
Economic Research Inc., which has collected statistics back to
1854.
The Bureau of Economic Analysis, a division of the Commerce
Department, releases three estimates of each quarter's GDP as
more information becomes available to its analysts.
The government's last estimate May 27 put the growth rate at
4.1 percent, down from the advance estimate, April 30, of a 4.5
percent gain. The deterioration reflected a wider trade deficit,
which subtracted from domestic industrial production.
After-tax profits rose 6.2 percent in the first quarter,
previously estimated as a 4.3 percent gain, after falling 1
percent in the fourth quarter. Profits in the fourth quarter were
depressed by the costs to tobacco companies of their health-care
settlement with the U.S. government last year.
Before taxes, first-quarter profits rose 6.3 percent --
previously estimated as a 4.3 percent gain -- after falling 1.7
percent in the fourth quarter.
Inflation and Spending
The increase in the GDP price deflator reflected higher
service costs, the government said.
Since the last GDP report, which showed the deflator rose
1.4 percent in the first quarter, prices have reflected a rebound
in energy costs. After surging in April, the consumer price index
was unchanged in May -- the lowest reading in more than a year,
Labor Department figures showed June 16. The core rate, which
excludes food and energy prices, rose a smaller-than-expected 0.1
percent after increasing 0.4 percent a month earlier.
Through May, the CPI increased at a 2.6 percent annual rate,
up from a 1.6 percent pace during the first five months of last
year. At the same time, the core rate of the CPI has risen at a
1.8 percent annual rate, down from a 2.7 percent pace during the
first five months of last year.
Personal consumption rose at a 6.7 percent annual rate in
the first quarter, down from a previously reported 6.8 percent
gain and still the fastest gain since a 7.2 percent rise in the
first quarter 1988, the Commerce Department said.
Circuit City Group, the No. 2 U.S. consumer-electronics
chain, said fiscal fourth-quarter earnings rose 52 percent on
demand for digital video-disc players, satellite TV dishes and
wireless telephones. Electronics sales are booming as shoppers
snap up DVD players, digital phones and other new products to
replace those with older, analog technology.
Manufacturing
Spending on producers' durable equipment rose at a 9.5
percent annual rate in the first quarter, previously reported as
a 9.7 percent increase. Spending on producers' durable equipment
is a category of spending that economists watch to gauge whether
companies are expanding their operations.
Emerson Electric Co., of St. Louis, the manufacturer of
industrial automatic equipment and other electrical,
electromechanical and electronic equipment, reported its
strongest first quarter sales on record, $3.4 billion -- up from
$3.2 billion in the first quarter of 1998.
The U.S. trade deficit was $18.939 billion in April, less
than $10 million narrower than May's record high. Still, exports
rose for the first time in six months.
First-quarter exports were $4.5 billion higher than
previously estimated and imports were $2 billion less than in the
last report. That left a net trade deficit of $303.6 billion,
down from the previous estimate of $310.1 billion. Based on the
formula used to calculate GDP, a lower trade deficit has the
effect of boosting overall growth.
Inventories accumulated at about the same pace as the
previously estimated. Inventories rose $38.7 billion in the first
quarter, down from the $39 billion previously estimated. Real
final sales, which exclude the effects of inventory changes, rose
at a 4.6 percent pace in the first quarter, previously reported
as a 4.3 percent increase.
Residential spending rose at a 15.4 percent rate in the
first three months of the year, the same as initially reported.
Unusually mild weather in many parts of the country, coupled with
low mortgage rates, helped fuel home building in early 1999.
Adjusted for inflation, GDP totaled $7.780 trillion in the
first quarter when measured at an inflation-adjusted annual rate.
That compares with $7.678 trillion in the fourth quarter. Before
adjusting for inflation, GDP totaled $8.809 trillion in the first
quarter, when measured at an annual rate, compared with $8.681
trillion in the fourth quarter.
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