Economy Churns as Consumers Spend New Gross Domestic Product and Confidence Figures Show an America Feeling Strong

Article excerpt

The pedal is to the metal for the US economy.

Consumers are hitting the malls; business is buying new bulldozers; and, construction crews are loading their nail guns at near record rates.

Yesterday, the government reported that this near-frantic pace resulted in a surprisingly strong first quarter gross domestic product which grew at a 4.2 percent annual rate. The strong growth occurred despite the fact exports fell sharply - perhaps reflecting the financial turmoil in Asia. If the economy were to continue at this pace, economists are sure it would prompt the Federal Reserve Board to raise interest rates. "The Federal Reserve will be looking very carefully to see how much slowing occurs in the second quarter," says Robert Dederick, a consulting economist at Northern Trust Company in Chicago. Despite the strong gains in the beginning of the year, most economists believe the American economy will start to brake. Exports are surging into the country and taking away market share from US businesses. This was evident yesterday in news that inventories have risen sharply. Those exports - many from Asia - are being offered at such competitive prices, Americans are on a shopping binge. "The Asian shock is actually giving a push to domestic demand," says Mr. Dederick. The strong first quarter comes at a time when the Federal Reserve is increasingly anxious about the high-flying economy. There were reports this week that the Fed's governors, in their March meeting, were "leaning" towards higher short-term interest rates. "I believe there are growing tensions in the Fed," says Lyle Gramley, a former Fed governor. Interest rates But like many private economists he doubts the Fed will raise rates soon, despite the strong economy, since there are still few signs of inflation. Yesterday, for example, the Labor Department reported that workers' pay and benefits rose only moderately in the first quarter. "My guess is the Fed will not do anything in May," he says. The Fed's Open Market Committee, which sets interest rate policy, meets on May 19. Many economists expect the economy will moderate its pace because of the Asian problems. Already, exports are pouring into the country and the nation's trade gap with Asia is swelling. Robert Brusca, chief economist at Nikko Securities Co. …


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