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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: JeffA who wrote (46437)	5/27/1999 1:35:00 PM
From: Jon Cave	Respond to of 90042

U.S. Economic Growth Slows, Still Healthy I am not so sure if they will raise rates. With the GDP #'s being revised down I don't think so. Somebody argue against me. I am usually wrong anyway <g>. By Glenn Somerville WASHINGTON (Reuters) - The U.S. economy grew slightly less vigorously in the first quarter this year than previously thought, the Commerce Department said Thursday, partly because of a swelling trade gap. But corporate profits surged at the strongest rate in four years while buoyant consumers used stock market profits and rising incomes to increase their spending at the fastest clip in a decade, developments that analysts said signaled continuing expansion ahead. The nation's gross domestic product -- the broadest measure of total economic activity within U.S. borders -- grew at a revised 4.1 percent annual rate in the first quarter instead of the 4.5 percent previously reported, Commerce said. That was a slowdown from the final three months last year, when GDP shot ahead at a 6 percent annual rate but likely not enough to offer reassurance to Federal Reserve policymakers that above-average growth was a potential inflationary threat, analysts warned. ''The Fed will not take any solace from this report since its implications are for continued robust economic gains,'' said economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. The revised GDP estimate reflected a bigger bulge in cheaper-priced imports than the government had estimated earlier and weaker exports as well as less production of goods for inventories than was reported a month ago. But Naroff noted those may be temporary restraints, since recovering Asian markets will mean less drag from trade in the second half as overseas sales grow, forcing producers to resume a faster pace of inventory-building. ''Thus, it does not look like growth will slow anytime soon,'' he said. The prices component of the revised GDP report was little changed. The GDP price deflator that is widely tracked by investors was steady at a 1.4 percent rate of annual rise but that was up from 0.8 percent in the final three months last year. Federal Reserve policymakers said after a one-day meeting last week that they were on a heightened anti-inflation alert in case steady growth brought on escalating price rises. The U.S. central bank left interest rates unchanged but rattled financial markets by signaling that it had adopted a bias toward raising them if vigorous growth fanned big price rises. The first-quarter GDP revisions were in line with expectations in financial markets but prices skidded down in both stock and bond markets. On the New York Stock Exchange, the Dow Jones Industrial Average dropped about 190 points in morning trading while the price for the bellwether 30-year U.S. Treasury bond were down 16/32 of a point, or $5 per $1,000 of face value, while the yield kicked up to 5.84 percent from Wednesday's close of 5.80 percent. The key impression from the GDP report was that the U.S. economy still was booming ahead in its ninth straight year of growth. Commerce said consumer spending increased at a 6.8 percent annual rate in the three-month period -- the strongest spending rise in 11 years, since a 7.2 percent jump in the first quarter of 1988. Economist Sung Won Sohn of Wells Fargo Bank in Minneapolis, Minn., said ''a meaningful slowdown'' was unlikely until the Federal Reserve raises interest rates to trim consumer spending that was fueling about 90 percent of the first-quarter growth. ''We're in a tug-of-war between a consumer spending spree and weak balance of trade and right now consumer spending is winning,'' Sohn said. ''The only way to prick this bubble will be by (Federal Reserve Chairman Alan) Greenspan raising rates.'' The Fed will need further evidence of continuing strong growth and higher price rises to politically justify doing so, Sohn said, so that any actual rate rises likely will be later in the year. Corporate profits surged in the opening quarter as companies benefited strongly from the ongoing expansion. After-tax profits grew by 4.3 percent to a seasonally adjusted annual rate of $492.6 billion for the biggest increase since a 7.9 percent rise in the first quarter of 1995. Some of the increase was a snapback after big payments by tobacco companies in the final quarter last year to settle lawsuits sapped profits at that time while some came from higher energy and commodity prices. The value of the nation's GDP, adjusted for inflation, was $7.755 trillion at an annual rate in the first quarter, up from $7.678 trillion in the fourth quarter last year. In current dollars, GDP was running at an annual rate of $8.80 trillion compared with $8.681 trillion at the end of 1998 -- by far the world's largest single economy. Earlier Stories Durables Orders Soft But Trend Is Upward (May 27) U.S. Durables Orders Soft; Trend Upward (May 26)