Newspaper article THE JOURNAL RECORD

Consumer Spending Surge Boosts GDP Growth

Newspaper article THE JOURNAL RECORD

Consumer Spending Surge Boosts GDP Growth

Article excerpt

WASHINGTON (AP) -- The economy was expanding at an annual rate of 2.3 percent at the beginning of the year, with growth propelled by the biggest jump in consumer spending in more than two years.

The new estimate of January-March growth in the gross domestic product, the country's total output of goods and services, revised downward a 2.8 percent initial estimate that had shocked financial markets with worries that the Federal Reserve might begin raising interest rates.

However, the lower figure did not provide much relief from those worries because the decline came entirely from a bigger drop in business inventories than originally believed.

A drop in inventory accumulation reduces GDP, but it sets the stage for faster growth as factories step up production to restock depleted shelves.

Some economists predicted that GDP growth in the current April- June quarter could be as high as 3.5 percent, far above the 2.2 percent rate considered to be the Fed's target for this stage of the economic expansion.

Adding to concerns about possible Fed tightening was a second report Thursday showing that sales of new homes rose by an unexpectedly sharp 6.7 percent in April to a seasonally adjusted annual rate of 776,000 units.

While Wall Street was initially unsettled by the GDP report and the housing sales figures, the Dow Jones industrial average managed to finish the day up 19.58 at 5,693.41. Bonds were bolstered late in the day by strong demand for a new Treasury offering. The benchmark 30-year bond was yielding 6.94 percent.

Bruce Steinberg, an economist at Merrill Lynch in New York, said markets were likely to remain jittery for some time to come, even though he said he believed the growth spurt in the first and second quarters would be followed by much slower activity in the second half of the year.

"The forces pumping up the second quarter are temporary. We still expect the economy to slow significantly in the second half of the year," he said.

Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis, said he believed after a 3.5 percent GDP growth rate in the second quarter, GDP would slow to 1. …

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