Newspaper article THE JOURNAL RECORD

Rising Consumer Spending Keeps Economy on Track

Newspaper article THE JOURNAL RECORD

Rising Consumer Spending Keeps Economy on Track

Article excerpt

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 Thursday.

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. However, "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 Federal Reserve 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. …

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