Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1675)	5/27/1999 11:53:00 PM
From: porcupine --''''>	Respond to of 1722

May 27, 1999 GDP Growing at 4.1 Percent Rate A.P. INDEXES: TOP STORIES \| NEWS \| SPORTS \| BUSINESS \| TECHNOLOGY \| ENTERTAINMENT Filed at 5:30 p.m. EDT By The Associated Press WASHINGTON (AP) -- The biggest consumer spending spree in 11 years kept the economy growing at a robust rate in the year's first quarter, the government said today. But financial markets took a nosedive on investor worries that the fast growth would trigger higher inflation. The economy grew at a solid annual rate of 4.1 percent, even though the country's trade deficit was a bigger drag on growth than previously thought, the Commerce Department said. The government's new figure for gross domestic product -- the broadest measure of economic health -- represented a slight downward revision from a 4.5 percent figure released a month ago. But the new figure still showed a remarkably strong economy, now in its longest peacetime expansion. The GDP report also showed that corporate profits, which had been in the doldrums, had a sizable rebound for the first quarter. ''The economy is healthy, inflation is largely absent and earnings are picking up. Not a bad combination,'' Merrill Lynch economist Bruce Steinberg said. Consumer spending, which powered the 4.1 percent increase, grew at an annual rate of 6.8 percent -- the fastest increase since early 1988. That was even better than the original estimate of a 6.7 percent increase in consumer spending, which accounts for two-thirds of total economic activity. An inflation gauge tied to the GDP rose 1.1 percent in the first quarter, showing price pressures remained well contained. But financial markets, which have grown increasingly nervous about inflation, were not impressed with the figure. The Dow Jones industrial average closed down 235.23 points to close at 10,466.93 -- the biggest point drop since last September -- though the 2.2 percent decline was not among the largest historically in percentage terms. Investors were focused on the fact that economic growth remains well above the comfort level of the Federal Reserve, which only a week ago indicated it is edging closer to raising interest rates because of worries the economy is growing too fast. ''The bottom line is that the Fed probably would view this as still excessive growth,'' said economist David Jones of Aubrey G. Lanston & Co. Many analysts believe that the central bank could start raising interest rates as soon as its next meeting June 29-30 if inflation pressures appear to be mounting. In the January-March quarter, economic growth was reduced by 2.53 percentage points by record trade deficits tied to the global financial crisis that has pushed one-third of the world into recession. That, in turn, has cut sharply into American export sales and generated a flood of cheaper imports in the United States. In addition to the wider trade deficit in the revised figures, the government said the GDP dropped from its estimate of a month ago because businesses were not building up inventories as fast as originally thought. Steinberg said the lower inventories will bolster growth above what had been expected in the current quarter because businesses will not have to cut back production to work off unwanted stockpiles. He predicted the GDP would expand at an annual rate of 3.5 percent in the April-June period, down only slightly from the first quarter rate. The 4.1 percent growth rate in the first quarter was even faster than the 3.9 GDP increase for all of 1998. The GDP expanded 6 percent in the final three months of last year. ''The (GDP first quarter) revision was small and still signals a very booming U.S. economy and a lopsided pattern of spending -- a consumer boom and a trade bust,'' said Allen Sinai, economist with Primark Decision Economics. Corporate profits for the first quarter increased at an annual rate of $31.8 billion -- the biggest annualized increase in two years. Corporate profits had fallen $5.3 billion in the fourth quarter. The rebound was attributed to lower payments tobacco companies had to make on out-of-court settlements. Those settlements had subtracted $13.5 billion from fourth quarter profits and only $900 million in the first quarter. In a separate report, the Labor Department said the number of Americans filing new claims for unemployment benefits was unchanged last week at 300,000. New claims have been at or below the 300,000-person market for 12 of the last 21 weeks, a sign of the best job market conditions in three decades. In addition to consumer spending, first-quarter growth was bolstered by a 10 percent increase in business investment and a 15.4 percent rise in housing construction, enjoying a boom because of low mortgage rates and record high levels of consumer confidence.